Shivam Autotech Limited, earlier known as Munjal Auto Components, is a part of Hero Group. The Company commenced its full fledged operations in September 1999. It manufactures and markets Components for the Auto Sector to an Original Equipment Manufacturer (OEM) and has some exposure to the railway industry.

The company’s current product offering includes different kinds of Gear Blanks, Spline Shafts, and Finished Gears & Plungers.

Its principal customer is Hero Honda Motors and it also supplies plungers for fuel pumps to MICO BOSCH.

.. The company has set up a new facility at Haridwar and invested around Rs 180 crore in it. They have installed the latest technology available in the world for high speed forging in this plant. This plant is an example of lean manufacturing where the raw material is converted into finished gears in just 48 hours; this will help them in attaining competitive advantage.

.. Company’s Unique Selling Proposition is the fact that it is among the few auto component manufacturers in the country today which uses Near Net Shape Technology for Cold and Warm Forging. They also have huge capacities in cold, hot and warm forging at the same place which helps in generating synergies.

At Current market price of Rs 135, the stock is available at a P/E of 6.27x of its FY11E earnings, and 4.44x of its FY12E earnings. We recommend a BUY with target price of Rs 210, given that company’s future shows potential.

During the quarter ended Jun’10, on q-o-q basis company’s net sales increased 12.03% to Rs 59.23 cr from Rs 52.87 cr during the previous quarter. The operating profit of the company witnessed an increment of 26.29% to Rs16.43 cr as against Rs13.01 cr last year. The Operating profit margin of the company increased 314 bps to 27.74% against 20.24% in the previous quarter. The bottom line of the company declined by 4.71% for the quarter ended on 30th Jun, 2010 to Rs 4.65 cr as against Rs 4.88 cr during the previous year.

The fortunes of the Auto component industry are dependent on the fortunes of the auto industry. As per Indian Suppliers’ report, The automotive sector in India contributes 5% to the nation’s GDP and 17% to the indirect taxes. According to the Automotive Mission Plan (AMP) 2016 released to make Indian auto industry a destination of choice for design and manufacture of automobiles in the world and to produce auto components worth $145 billion accounting for more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016, 100 per cent FDI (Foreign Direct Investment) is allowed to encourage the international players to enter the Indian markets.

Automobile Industry has continued to be in growth mode, especially two wheeler motorcycle segment which accounts for more than 80% of the total market share of vehicles by volume. Total two-wheeler sales in July’10 are
9,38,514 units which are the all-time high, surpassing the previous record of 9,36,555 in May’10. Sales of two-wheelers were up 30.41 per cent over 7,19,656 units in July 2009. Motorcycle sales in India during July also went up by
30.09 per cent to 7,10,621 units compared to 5,46,233 units in the year-ago period. The country’s largest motorcycle maker Hero Honda posted a growth rate of 13.96 per cent in sales at 3,89,795 units in July
2010 and Rival Bajaj Auto sales soared by 76.01 per cent to 1,92,138 units.

There is an overall optimism for the two-wheeler industry to notch a healthy growth in the years to come because the household incomes - in urban as well as rural India - will continue to grow handsomely, the way it has grown in the last decade. Therefore the long-term story for two-wheelers will continue to be good.

Shivam Autotech Ltd, an auto components manufacturing firm, produces a wide array of high precission, near net shaped forging parts in both Warm and cold Forging. The advantage of these technologies includes high production rates, better dimensional accuracy, excellent surface finish and superior mechanical properties.

The company has a very strong engineering force specialized in in-house design, new product development, value engineering and is capable of adapting to new technology.

Major plank of the company’s business is derived from the two-wheeler industry and the good sales number of two wheelers in July depicts that the company would continue to grow at a healthy rate.

Hero Honda is the major customer of the company, and the good auto numbers posted by it would boost the growth of the company. The company is also equipped to make very sophisticated cold forging components for various other potential customers, which gives them the competitive advantage.

Company has further stepped up its investment to enhance the operational capacities and to embrace the new and exciting opportunities for additional business within the focused segments of automobile industry. This shows the company is targeting to expand in the future.

Its state-of-the-art technology and plant & machinery at Greenfield factory at Haridwar, Uttarakhand has enhanced its capacity for the supplies to its principal customer Hero Honda Motors. This would help the company to chunk larger revenues.