Sharda Motor Industries Ltd. (Cash machine in small cap space)

Sharda Motor is in the business of manufacturing of Exhaust System, Catalytic Converter, Independent Suspension, Seat Frames, Seat Covers (Two Wheelers & Four Wheelers), Soft Top Canopies, and Pressed part- White goods products.

It is leading supplier to leading auto manufacturers and clients include Maruti, Tata, Hundai, Mahindra, Tafe, Nissan, Force etc.

Financial snapshot of the company’s performance -

Company’s sales growth was peaked in FY 11, post that company’s growth was almost flat till FY 16, from FY 17 company started to grow its revenue in early double digit of 10% to 12%. However in the period between FY 10 to FY 17 company has invested almost 340 cr. in capex.

Although I am unable to identify the manufacturing capacity and utilization level, Company’s balance sheet shows that company has invested in its capacity improvement and expansion in last 5 years and now revenue growth should come.

Since last three years company’s net profit is increasing at CAGR of 60% primarily because of improvement in operating margins.

What is most important is that along with improvement in margin company is also able to reduce its working capital requirement.

These all improvements makes the company a free cash flow machine in small cap space - in last three years company has generated free cash flow of more than 300 cr.
Company has cash balance of 170 cr in books and its investment in Bharat Seats Ltd (a listed company) is worth 150 cr.
This cash position will allow the company to expand in future without much debt and utilization of future profit.

If we exclude the above investment value and cash balance from market cap then company’s valuation comes at attractive PE of 13.

As on June 30 promoter has ~73% holding in the company.

I request Forum member’s view on the above company, and help in identifying its capacity and addressable market size.