A lot has happened in last 6-8 months which makes Rane Madras an interesting play.
- Company has divested its loss making US casting business.
- Has setup an unit in Mexico to export to US players. North American Free trade agreements give preference to local presence. So manufacturing happens in India and and assembly/machining in Mexico.
This should add 250cr to topline to start with. - Biggest is merger of Rane Brake and Rane Engine valves with Rane Madras. This will help in number of ways- Larger entity with 3500 cr sales and 2300 cr mcap at current prices, lower D/E ratio, cross-selling and synergies in manufacturing and manpower.
Apart from topline growth opportunities there seems to be lot of operating leverage built in which is apparent from low Mcap/sales ratio.
Export from quality perspectives should not be an issue as Rane Madras has been at forefront winning Deming award
This also shows that management’s focus is back on their crown jewel as they intend to capitalize on export opportunities which opens up due to China + 1. Rane Holdings parent has two other JV with NSK and ZF where they hold 49% each. These businesses are focused on India and controlled by JV partners. They seems to have stabilized. Last concall all discussion was around merger.
Disc: Added 1% of PF around current prices