GNA Axles - Poised For Strong Growth In The Coming Years: HDFC Securities

HDFC Securities Retail Research

Though the demand conditions in the export markets were challenging so far, there are early signs of turnaround. GNA Axles Ltd. could benefit due to this recovery and new SUV capacity. Reasonable valuation after the latest correction is another positive.

We expect revenue/Ebitda/profit after tax of the company to grow at compound annual growth rate of 8/11/14% over FY23-FY25E on the back of higher volumes driven by higher commercial vehicle sales in the domestic market and growing CV/sports utility vehicle sales in the American market.

We believe investors can buy the stock in the band of Rs 458-470 and add on dips in Rs 410-420 band (10.5 times FY25E earnings per share) for a base case fair value of Rs 508 (13 times FY25E EPS) and bull case fair value of Rs 546 (14 times FY25E EPS) over the next two quarters.

Key Triggers

• Leading manufacturers of Axles Shafts in India.

• Visibility of growth in CV, SUV and tractor sales.

• Increasing demand of trucks in North America to drive export revenue.

• Foray into SUV market to derisk CV cyclicality.

• Tractor growth momentum to continue albeit at slower pace.

• Domestic CV sales on a strong footing.

• Growing scale of operations with improving margins.

Risks and concerns

• Dependence on some large customers.

• Significant dependence on exports or international customers.

• Currency fluctuation risk.

• Higher raw material prices.

• Depends on automotive sector.

• High working capital.

About the company

GNA Axles is the market leader in the off-highway segment, and meets 80% of rear axle shaft requirement of original equipment manufacturers in India, primarily because of longstanding association with all major OEMs.

Furthermore, to leverage its business relationships, GNA Axles has entered into SUV axle shafts business which would diversify its end-user segment.

GNA is a niche player in the auto-component segment with a strong brand, long-term relationship with clients and strong financials. The monsoon after a sluggish phase since early September has picked pace again that could offset fears of setback in rural economy, fuelling the growth of farm equipment.

Recovery in the Indian medium and heavy commercial vehicle truck segment will act as a tailwind for its growth trajectory. Having limited competition in the same product range, and with the recent entry into SUV market, we believe GNA is poised for strong growth in the coming years.

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