Established in 1985, in technical and financial collaboration with Showa Corporation of Japan, the pioneering global leaders in the manufacture of shock absorbers, Munjal Showa Limited is a member of Hero Group, a US $1.3 billion manufacturing conglomerate, with a 45-year history. Promoter holding stands at 65.02% (including 26% holding of Showa Corporation). Company designs and manufacturers shock absorbers and struts for leading two-wheelers and fourwheelers. MSLâs manufacturing plant is spread over an area of 24,075 sq mt in the industrial area of Gurgaon, Haryana, on the outskirts of the National Capital Territory of Delhi, another manufacturing plant is situated at Haridwar. India Munjal Showa Limited is one of the largest suppliers of shock absorbers to major auto giants in India, Japan, Germany, the United States and the United Kingdom, amongst other developed markets.
Financials
)- Company is virtually debt free now. They have reduced the debt to 0 in 2014 from
-Company is delivering since last many years consistenetly in terms of Sales growth, profit growth and RoE. Weighted RoE of last 5 years stands at 21.38%.
)- EPS for FY14 is 17.42
)- Working capital has increased significantly in FY14 to 92.67 from 29.40 in FY13. Though don’t know the reasons behind that in detail. If seniors can throw some light on this than it will be great.
Pros
)- Major customers of company are in the expansion mode which is the opportunity for the company.
)- Good clientele (Hero, Maruti, Scooters, etc) which will keep on growing provides the good platform for Munjal showa to serve.
Want the views of Seniors/Other members on the prospects of company.
Of course, it is easy to comment in hindsight, and it is really hard to argue with the article in general.
But I would just like to point out, that of the 5 stocks mentioned as available “at sensible valuations”, only Munjal Showa has given market beating returns. Otherwise Ador Fontech, PNB and Petronet LNG have far underperformed. Also, M&M has in general, underperformed Auto considerably.
So, nice thoughts, but to translate that into specific stocks to buy, not so easy…
I have been looking at this name - just keep wondering that inspite of better operating metrics as compared to Gabriel India, why are they so undervalued (PE of ~10x as compared to mid - 20s for Gabriel). Obviously, one key reason is that Munjal Showa is linked to Hero, and there is always the fear of margin pressure - but is this kind of a valuation difference justified?
.Request for an update on the current working and utilisation, if any…would help.
As per Md in his last meeting post Q2 results, he did mention that seeing robust demand, utilisation is being increased by 10percent
Hero volumes are up 11 % yoy in first half with higher growth during monsoons and positive commentary for rest of the season. As Hero is their largest customer (70%) and others are Honda and Maruti, they will definitely have topline traction.
On the margin front, there is some family separation happening and not sure about this part of the family - but I guess they will deal at arm’s length in the future as well. Showa corporation’s presence also helps. In any case ROCE’s have always been healthy.
There are not many stocks in the market which do a 20% + ROCE in depressed business conditions and available at a current PE of 12 . Dividend payout should also increase as they have paid back debt and will have current investments of over 100 Cr at the end of this year,
