Bharat Gears: Turnaround?

Bharat Gears Ltd. (BGL) (Incorporated in 1971) is India’s largest gear manufacturer. BGL is a major global supplier of automotive gears and heat treatment furnaces. BGL manufactures a wide range of gears for HCV, MCV, LCV, utility, and off-highway vehicles. The manufacturing facilities are located in Mumbra, Faridabad, and Satara. The Company has a strong Dealer network of 72 dealers in 26 states covering the entire domestic geography and 3 sales offices in Delhi, Mumbai & Kolkata

roduct Portfolio
Gears(90%): The co. manufactures a wide range of Ring Gears and Pinions, Transmission Gears and Shafts, Differential Gears, Gear Boxes, and a wide spectrum of bevel gears and assemblies which find application majorly in the automotive industry.
Furnaces: Co. ventured into the construction of furnaces for captive use initially and thereafter, moved into its commercial production. They continue to build batch and continuous heat-treating furnaces in collaboration with technology major, AFC – Holcroft of Michigan, USA.
Automotive Components: This division includes automotive products such as automotive clutches and components, turbochargers and components, driveline products, axle shafts, flywheel assemblies, and rings, air suspension, etc

Gears :
Domestic: Ashok Leyland, Mahindra and Mahindra, JCB India, SMK ISUZU, John Deere India, Toyota Kirloskar, TATA Motors etc.
Overseas: Carraro Italy, CLAAS Tractor SAS France, EATON Corporation, John Deere UK, Spain, Mexico, Brazil, Germany, Transaxle Manufacturing of America (TMA) USA, ZF USA, Germany, etc.
Furnace: Automotive Axles Ltd., AAM India Manufacturing (American Axles), Oerlikon Drive Systems, Varroc, Timken India, Mahindra & Mahindra Ltd., Avdhoot Heat Treat Pvt Ltd, etc [3]

Revenue Segment
Industry Sector wise:
Agricultural Machinery: 60%
Commercial Vehicle: 13%
Construction Equipment: 15%
Others: 12%
Tractors are the key end-user sector for its products.

Geography Wise:
India: 66% of revenue in FY20
USA: 21% of revenue in FY20
Rest of the world: 14% of revenue in FY20

Revenue Concentration FY20
One single client contributed to 27% of the Revenue[5]
Co. had 4 customers (2019: 5 customers) that accounted for approximately 46% of all the outstanding receivables (2019: 52%)

Red Flags of the past
Withdrawal of One-Time Debt Restructuring

The co. had earlier informed that it has applied for restructuring of its term loans availed from KKR India Financial Services Limited (KKR). Simultaneously, the company had also applied for an additional loan facility under the Emergency Credit Line Guarantee Scheme (ECLGS 2.0) announced by the Government of India under the Atma Nirbhar 3.0 package. In light of the aforesaid sanctioned facilities as well as improved business scenario, restructuring of debt was no longer required.

Rights Issue
Issue of 12 Lakh equity shares with a face value of Rs. 10/- each at a price of 105/- per equity share for an amount aggregating to Rs. 12 Cr. on a rights basis in the ratio of 1:7

Financials :

Particulars Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Sales 508.13 594.40 463.12 503.03 729.44
Expenses 465.32 535.69 444.43 467.19 663.68
Operating Profit 42.81 58.71 18.69 35.84 65.76
OPM 8% 10% 4% 7% 9%
Other Income 1.55 4.47 4.82 1.33 7.13
Depreciation 18.28 21.76 26.69 24.15 20.39
Interest 16.84 21.97 21.65 22.67 18.43
Profit before tax 9.24 19.45 -24.83 -9.65 34.07
Tax 2.94 6.92 -6.05 -1.95 8.23
Net profit 6.30 12.53 -18.78 -7.70 25.84
EPS 6.12 12.17 -18.41 -7.55 25.33
Equity Share Capital 8.14 8.14 9.31 9.31 10.24
Reserves 69.68 80.35 70.27 63.52 97.95
Borrowings 133.85 161.50 151.61 118.09 91.90
Other Liabilities 154.06 169.72 142.95 192.71 203.00
ROE 8% 14% -24% -11% 24%
CFO 9.13 9.47 1.68 3.50 24.08

The company had some issues in the past but has been present in the business for 20 years+

Interesting points:

  • Turnaround in the yearly numbers
  • Tangible INR 700 cr+ top line: a sizeable auto anc player.
  • INR 25 cr odd operating profit… trading at 140 cr mcap
  • Last 10 years:
  • Never made an operating loss
    -Pat loss in 4 years out of 10

Dont know:

  • Doesnt do concalls and does not share presentations. Only AR
  • Seems to hv got a big order from an OEM which lead to top line growth in current yr
  • Will this traction sustain

Probable Mkt hesitancies:

  • Cigratte butt investing: ICE is a dying business
  • Inconsistent in delivering results
  • Was close to a BIFR case at one point of time. Taking PE fuding at high rates raises concern
  • High Debt

Do share your views:

Disclosure: have a small tracking position for more than 2 qtrs.


CRISIL Ratings has upgraded its ratings on the bank loan facilities of Bharat Gears Limited (BGL) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BB+/Positive/CRISIL A4+’

Reason for Upgrade :
The rating upgrade reflects improvement in business risk profile on the back of healthy revenue growth and improved profitability expected in current fiscal. Revenue is expected to grow by around 35-40% in fiscal 2022 backed by healthy demand from export market and improved orders from large clients in the domestic market. Company has posted 63.7% growth in revenue during first nine months of fiscal 2022 on a year-on-year basis; albeit on a lower base. While revenue growth is expected to moderate over medium term; scale is expected to be maintained given sustained orders expected from clients. Supported by improved fixed cost absorption and better efficiency at its Mumbra plant; operating margin is expected to improve by around 200-300 basis points in current fiscal and likely to be sustained over medium term.

Margin Increase sustains for Longer term then Stock will be rerated.

Bharat Gears Rating May 2022.pdf (195.6 KB)


Growth in Tractor Sales (including John Deere) will improve Sales and Improvement in Operating leverage should rerate the stock in the coming months.


they havent shared much about their clients… would you hv any links/ understanding here?

Extract of Credit Rating for Customer Concentration

Key Rating Drivers & Detailed Description Strengths
Established market position in the automotive component industry and strong client profile, albeit high customer concentration in revenue BGL is a leading player in the Indian tractor gear market. By virtue of its established relationships with original equipment manufacturers (OEMs) and high quality, its products enjoy strong brand recognition. A major part of the company’s revenue is derived from large OEMs such as the John Deere group, which constitutes around 50% of the turnover. While there is client concentration, these customers have been dealing with BGL for over two decades and the components supplied are critical to the product, partially mitigating this risk


Should one also look at exports here?