Hi-Tech Gears: The Auto Ancillary Stock That's Growing Like Tesla, up 87% in a Month

Shares of auto ancillary company The Hi-Tech Gears is on a roll these days.

You see, liquidity is what drives stocks. As liquidity increases, stock prices go up. As liquidity is drained, stocks prices may go down.

This is a fairly well understood phenomenon in economics and the professional investment community.

And that's exactly what's happening with The Hi-Tech Gears these days.

The stock is attracting all the right kind of investors.

The latest shareholding pattern revealed by the company had some big names entering the stock in the current quarter.

One such name was Nemish Shah, who now holds 7.17% equity in the company worth Rs 1.2 billion (bn) as of Friday's close.

A billionaire in the Indian market, Nemish Shah was the man who took Infosys public.

He is the co-founder and director of Enam Holdings and prefers the value investing style of investing.

The Hi-Tech Gears: India's Tesla?

Indian auto and auto ancillary stocks have remained in focus ahead of Elon Musk's upcoming visit to India later this month.

The billionaire entrepreneur is expected to unveil plans to introduce Starlink as well along with Tesla.

Whenever there's news around Tesla's India entry, auto ancillaries are seen as well-placed during this scenario.

Tesla is one of the major clients for Indian auto companies having a presence globally, particularly in North America.

With Tesla, BYD and other global players entering into Indian markets, top auto ancillary companies will be in a sweet spot.

Think about the windshields, rubber needed for tyres, high end EV chargers, among all the other things.

Amid this situation, The Hi-Tech Gears is placed in a sweet spot.

In the first nine months of FY24, the company's continued focus on adding new products and new customers in each segments proved well. By doing so, the company showed consistent improvement in operating income.

To bring down debt for the year, the auto ancillary company sold one of its plants and used the proceeds of around Rs 1.7 bn to prepay debt.

Promoters of the company hold around 56% stake as of March 2024.

The company has 5 plants across the world & sells auto components to global marquee clients like Benz, JCB, Bosch, etc.

Hi-Tech Gears is looking to add more global clients and diversify operations across its plants worldwide.

What Next?

Over the years, the company has reported shaky numbers with FY22 turning one of its worst years in history.

However, with the strong performance posted in the first three quarters of FY24, the company is looking to end on a high note.

In fact, FY24 could be the company's best years ever in terms of net profit and revenue.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	9,137	7,220	7,455	9,706	11,692
Growth (%)	22%	-21%	3%	30%	20%
Operating Profit	1,302	951	1,004	896	1,493
OPM (%)	14%	13%	13%	9%	13%
Net Profit	356	83	288	-11	231
Net Margin (%)	4%	1%	4%	0%	2%
ROE (%)	13.9	3	9.6	-0.3	6.8
ROCE (%)	13.4	7.8	8.3	4.8	8.3
Dividend (Rs)	3.5	1.5	2	1.5	2.5
Debt to Equity (x)	1.6	1.3	1.3	1.4	1.3

Data source: Ace Equity

With government initiatives like vehicle scrappage policy, Cafe 2 norms, Atmanirbhar Bharat, all are expected to drive demand for precision auto ancillary components.

The Hi-Tech Gears has guided for revenue from the current order book in next 2-3 years at around Rs 1,100 million to Rs 1,450 million per annum.

The company has also decided to set up all new forthcoming facilities as "ECOFAC" i.e. Sustainable Green Manufacturing Plants.

Moreover, Ontario Inc, Canada, is a wholly owned subsidiary of The Hi-Tech Gears.

In fact, it has various step-down subsidiaries (around nine to be precise) across Canada and the US. The company's investment in these subsidiaries was valued at around Rs 2 bn in 2021.

How Hi-Tech Gears Share Price has Performed Recently

In the past one month, The Hi-Tech Gears share price has moved up by over 85%.

The Hi-Tech Gears has a 52-week high of Rs 932 touched on 4 April 2024 and a 52-week low of Rs 243 touched on 28 April 2023.

In the past 1 year, shares of the company have rallied over 250%.

Here's a table comparing Hi-tech Gears with its peers -

Comparative Analysis

Company	Hi-Tech Gears	Federal Mogul	GNA Axles	Precision Canshafts	Rajratan Global Wires
ROE (%)	6.8	11.6	19.9	6.6	25.7
ROCE (%)	8.3	15.7	21.4	8.4	27.1
Latest EPS (Rs)	60.2	21.3	27.3	5.1	14.2
TTM PE (x)	14.6	17.2	15.2	41.7	45.6
TTM Price to book (x)	3.7	1.9	2.2	2.7	6.9
Dividend yield (%)	0.3	0.0	1.5	0.5	0.3
Industry PE	36.6
Industry PB	4.3

Data Source: Ace Equity

About Hi Tech Gears

The Hi-Tech Gears offers products for 2-wheelers, light vehicles, commercial vehicles, off-highway vehicles, and engine components.

Its offerings include high precision gears and shafts, straight and involure special ratchets, kick spindles, power take-off components, etc.

To know more, check out The Hi Tech Gears' financial factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...