Bharat Seats Limited : Well cushioned seat for a smooth journey

Company details: Bharat Seats

Basically the company is a seating systems manufacturing company running by auto mammoths Suzuki,Maruthi and sharda motors.

Company & Background details:

Bharat Seats Ltd is a seating systems manufacturing company mainly for two and four whelers. It is a joint Venture of auto mammoths Suzuki Motor Corporation(14.8%), Japan, Maruti Suzuki India Ltd(14.8%),Sharda motor (28.7%)and the Relans family16%, all together holding 74% of control in the company.

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Products & Clients:-

Company has three manufacturing plants existed in gurgaon and produces Four-Wheeler)Two-Wheeler Seating System,Railway Seats & Berths,Moulded Carpets andTwo-Wheeler Frames.The company got my attention after seeing it’s strong client base.

It’s client base includesMaruti Udyog Ltd,Suzuki Motorcycles Ltd,Indian Railways ,Hyundai Motor Industries Ltd,Mahindra & Mahindra Ltd,Mahindra Renault Ltd,Mahindra International,Tata Motors Ltd,General Motors,Samsung India Ltd,Fleetguard Inc,John Deere andCarrier Air conditioning & Refrigeration Ltd.

Financial Performance (Figures are in Crores except EPS)

FY Mar’2014 Mar’-2013 March-2012

Sales 631 681 432

Interest 6.25 6.47 3.35

Net Profit 6.7 5.3 5.6

EPS 2.13 1.7 1.8

Positives:

  • Company direct beneficial of auto segment growth. It’s proxy play for many who missed the bull journey of AUTO companies.
  • Company reported better number in the last FY despite lower sales but by better utilization of inventory and reducing the costs.
  • Company reported good set of numbers for September results with increase of Sales to 173cr from 153cr and correspondingly EPS also changed from 0.42 rs to 0.71 rs.
  • Being owned by auto major helps in several aspects such as order flow,promoter integrity and meeting the industry expectation with latest technical changes in the sector.
  • Company providing the seating systems,moulded floor carpet and luggage carpets for Maruthi Suzuki india.
  • Company is providing the seating system and frame assembly for Suzuki Motor cycle.
  • Company providing extruded roof mould for RITZ,WAGONER previously which are imported and also started supplying new seating system for SWIFT model.
  • Company plans in manufacturing expansion by two more units in Manesar(2014) and Gugaon(2015). Manesar plant started the production and is supplying four wheeler seating systems to maruthi suzuki india ltd.
  • Company product divergence from seating system to moulded carpets to two-wheeler frames and Railway seats & Berths.
  • Company’s plans to become a complete interior systems supplier with own R&D centre approved by Ministry of Science and Technology. Already company has technical collaboration with Suzuki motor corporation,Japan and Toyo Seat,Japan in different products.It spent 2.76 cr(0.5% of total turnover or 45% of net profit) under R&D activities.
  • Company has regular dividend payment history, currently the face value is 2rs.
  • Recent Govt tax changes in excise duty is good for company(Excise duty last year @72 crores)

Negatives:

  • Company over dependence on auto sector, this can overcome to certain extent by getting big orders from Indian Railways.
  • Company debt levels are increased in the previous year because of expansion but they are slightly down this year.

Disclaimer: Planning to invest in a SIP manner.

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I am sorry at this CMP, I do not see a great value in the stock. Seat manufacturing is a fairly commoditized business (I know some background on harita TVS). The thing to understand is that OEM’s will allow you to just about earn a ROE - enough to keep you in business

Looking at the past RoE’s of about 15-17%, that seems true. A basic porter’s analysis will tell you that maruti/suzuki will have upper hand on pricing power.

If you are buying the stock for 2 x BV, the effective RoE you are getting is only about 7-8% - so unless you are sure that RoE will improve drastically, And 5 year EPS growth is 13% - about average.

From the analysis I’ve done, it’s only companies that have enormous scale and size like motherson sumi or who do differentiated, critical products (like bosch, amara raja) who can create wealth over long term. Others have to be bought at a margin of safety to get any meaningful wealth.

Just my humble thoughts.

3 Likes

i just did some comparison between Harita and Bharat seats. Bharat seats is looking good on comparison.

Seems like fundamentals are improving from the last 3 years, but this small cap stock seems to be missed the current rally considering the promoter pedigree and future expansion.

I feel that there is good scope for further appreciation in the long term considering the following factors.

1). This q2 results are resembling the improvement in environment.

2). Harita sales/eps are going down from last 3 years, where as in in bharat seats sales grown more than 80% percent. Market capitalization of bharat is 90 crores Vs Harita 135 crores. Annual sales of Bharat is 620 crores Vs Harita 500 cr sales(going down annually).

2.The company product divergence from seats to auto interiors is good scope for earning improvement.

3). I tried to see their order book size from indian raliways,but nothing available in AR. how to find their existing/ completed order size for indian railways?

4). Management opening 2 manufacturing units with in a year means surely there will be some long term agreements with suzuki and maruthi according to my opinion.

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Any update from the results yesterday…seems really good result

http://www.moneycontrol.com/stocks/reports/bharat-seats-outcomeboard-meeting-9768721.html

The Result of 2017-18 Q4 Announced April 19,2018. Very good Result.
results-2017-18q4.pdf (1.3 MB)

Bharat seats is now trading at 18 PE based on FY18 while Harita seats is (TVS group company) is trading at 15.5 PE. From last 3 years Harita has been performing quite well both in terms of sales and profits. Does anyone have a revised comparison in both companies? Problem with Harita is not much informartion is available in public and free float is low. Just going by report from HDFC its eps is expect to jump from 48 to 68 by FY20. Appreciate view of fellow boarders.

Disclosure: Have positions since long in Harita and have added more recently. No position in Bharat seats yet.

@Ankurhere @varadharajanr @sateesh

Has anyone looked at Harita Seats or Bharat seats at CMP? Looks good for long term.
Good promoters, sufficient promoter shareholding, buoyant auto market, good growth plans. around 15 to 18 PE appears reasonable…

Not invested but looking closely.

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To me Harita seems really cheap now quoting at 13 PE based on Fy18 and potentially less than 10 PE for Fy20. I don’t know the reason for sudden fall in last 10 days after holding strong in all tvis carnage. Being a tvs group definitely gives lot of comfort. Also good thing about the seat business in general that I see is that it’s immune to electric car disruption. Any more views welcome

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Hey Sateesh,

Bharat Seats is looking like a good pick at the moment. Where did you get the information about the client list from? Any update on that? Also, any competitors other than Harita Seating? Thank you!

Also, any updates on the order book and details on the shift to interiors? Thanks a ton