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Banco Product

Printed From: The Equity Desk
Category: Investment Ideas - Creating winning portfolios!
Forum Name: Stock Synopsis
Forum Discription: A bried discussion of companies on very specific matters. Normally this is the prelude for further research as always members would be discussing quality companies with good management only
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=2729
Printed Date: 20/Apr/2025 at 8:15am


Topic: Banco Product
Posted By: manish_okhade
Subject: Banco Product
Date Posted: 16/Apr/2010 at 9:56am
Profile:
 
Banco manufactures Radiators, Oil Coolers, Engine Gaskets and engine cooling assemblies. Banco has a tie up with Klinger, Germany and Japan Metal Gaskets, Japan for the Indian market.
 
Financials:
 
CMP: 99
MCap: 712 Cr
TTM PE: 10.5
Industry PE: 25
RoE: 24.5% For FY09
P/BV: 4.1 
Debt free.
 
9 month EPS: 7.91 !! On growth track already ahead of last year
EPS of 5.62.

Growth:

Net Profit 10.54 12.71 25.26 43.30 39.88
 
Earnings Per Share 15.59 18.80 37.36 6.10 5.62

EPS has dropped in past 2 yrs due to equity dilution.
 
PM has consistantly increased in past 3 years:
 
9.94 7.72 7.26 9.55 14.21
 
 
Valuation:
 
RoE is very good as compared to peer and that too w/o any leverage. Hardly 3-4 companies are there with RoE in this range among auto ancellaries.
 
Though P/BV is high but considering a good RoE, Banco deserves to be a quoted at premium to its BV.
 
EPS FY10 is estimated to be 10+ so Banco is available at PE FY10 of 9.9. While peers are quoted at much higher valuation hence looks relatively cheap!
 
I estimate RoE of more than 40% for fulll FY10 which is by no means a criteria to neglect.
 
Banco is consistantly cash flow +ve and its growing:
 
Net Cash From Operating Activities 12.79 -7.88 14.98 10.92 37.01
 
My feel is that if one believe in India cnsumer story to stay there then Banco is the right investment. Looks historically expensive so can be baught on dips.
 


Replies:
Posted By: iaditya
Date Posted: 16/Apr/2010 at 10:56am
Does Banco sell to retail customers or does is it a regular auto ancillary, selling essentially to companies like Tata Motors etc: which means they would not have much pricing power.

Posted By: manish_okhade
Date Posted: 16/Apr/2010 at 10:58am
Originally posted by iaditya

Does Banco sell to retail customers or does is it a regular auto ancillary, selling essentially to companies like Tata Motors etc: which means they would not have much pricing power.
 
I beleive its a regular ancillary. Increasing NPM negates issue of limited pricing power.

Posted By: basant
Date Posted: 16/Apr/2010 at 11:36am
Increasing profits can come out of cost control also that does not guarantee pricing power. I have not seen this one but put in a general statement as to why increasing profit margin is no guarantee of pricing power.



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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: manish_okhade
Date Posted: 16/Apr/2010 at 11:46am
Originally posted by basant

Increasing profits can come out of cost control also that does not guarantee pricing power. I have not seen this one but put in a general statement as to why increasing profit margin is no guarantee of pricing power.

 
I agree with you.
 
NPM was highest last year because RM Cost would be lower. Its a common feature for all manufactures in FY08-09 so i guess no big deal. But in 9 M its even higher i.e. 19%! Either Banco has low cost inventory of past year or they would have done something else. I guess former possibiliy is stronger.

Posted By: master
Date Posted: 17/Apr/2010 at 1:21pm
Originally posted by manish_okhade

TTM PE: 10.5
Industry PE: 25
 
Who is the market leader & comparable peers for banco in this business segment?
 
 
 


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Someone’s sitting in shade today because someone planted a tree long time ago.

Posted By: manish_okhade
Date Posted: 17/Apr/2010 at 3:45pm
Originally posted by master

Originally posted by manish_okhade

TTM PE: 10.5
Industry PE: 25
 
Who is the market leader & comparable peers for banco in this business segment?
 
 
 
 
Sorry, no idea.

Posted By: basant
Date Posted: 17/Apr/2010 at 5:40pm
Auto ancillaries cannot command that average PE(25). Something seems to be wrong in that industry PE classification.



-------------
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: manish_okhade
Date Posted: 17/Apr/2010 at 10:41am
Originally posted by basant

Auto ancillaries cannot command that average PE(25). Something seems to be wrong in that industry PE classification.

 
This data is taken from Dala Strt magezine (it says Avrg PE is 26.2 in 11 Apr 2010 edition). I guess there are few heavyweights like BOSCH, MothersonSumi etc which inflats the industry avrg PE.
 
Well, valuation is more based on high RoE w/o leverage and growing FCF not on PE. I gave Ind PE just for relative measurement.

Posted By: bihisello
Date Posted: 03/Aug/2010 at 11:47pm
balloon : Was very disappointed with Banco mgmt
Ramesh Damani : cement is out of the blue..mgmt cleary wants to diversify out of auto ancillary..so it is a bet now on mgmt ability

...

prashanthpp7 : Do you believe that Banco management is capable to deliver ? In cement business!
Ramesh Damani : i really do not know..but i think they are smart people...

http://www.moneycontrol.com/news/mgmtinterviews/chats/detail_new.php?filename=2010-08-03-16-00.txt

Posted By: spurohit
Date Posted: 24/Dec/2010 at 1:47pm

Banco Products is into manufacturing of gaskets and radiators. Roughly 25% of its sales come from gaskets and 75% from radiators. This was not always the case. Apparently they have proactively shifted away from gaskets and towards radiators.

Gaskets appears to be a classic case of a commodity where the company enjoys absolutely no pricing power. Only way they have increased sales even in this segment has been through volume growth.

Radiators has some degree of pricing power. But that's a more recent phenomenon. Over the last 10 years, there has been a technological shift in this segment. Indian manufacturers were manufacturing Copper/Brass alloy radiators. These had gone out of fashion in the west a long time ago and gradually even Indian automobile manufacturers also started shifting to Aluminium alloy radiators. These are light-weight and more cost-efficient ones. Around 2003 onwards, Banco, through some in-house R&D and some external support, adopted this technology. This change has boosted its sales greatly, specifically its exports. There is a sister company by the name Banco Aluminium. Don't know if Banco Products enjoys the fruits of synergy in terms of its cost of raw material (aluminium).

The management has fairly good ability at adapting to changing business environment and has put its 40+ years in this business to good use. I am yet to analyze this company further. But this move to cement business came as a news to me from the comment above. Don't know the rationale for this diversification


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