Double Income Alert: This Auto Ancillary Stock is a Good Medium-Term Bet - Views on News from Equitymaster

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  • Oct 25, 2019 - Double Income Alert: This Auto Ancillary Stock is a Good Medium-Term Bet

Double Income Alert: This Auto Ancillary Stock is a Good Medium-Term Bet

Oct 25, 2019

Dear Valued Subscriber,

Although the Sensex is in cruise mode ever since the corporate tax cut announcement, there are still good quality mid and small caps out there that haven't really caught investor attention yet.

Yes, few of them have recorded sharp gains but given their long-term fundamentals, we believe there's still plenty of steam left.

One such company in my view is Banco Products Ltd.

Incorporated in 1961, the company is a leading manufacturer of engine cooling modules including radiators, intercoolers as well as oil coolers for multiple industries including automobiles, agricultural and forestry equipment, locomotives, diesel engines for power generation and the like.

The company currently has capacity to produce 3.3 m radiators annually spread across is five manufacturing locations.

The company's main promoters have more than 40 years of experience in the automobile and auto ancillary industry and have made a name for themselves when it comes to the quality and reliability of their products.

As far as the financials are concerned, while the company hasn't really set the growth charts on fire, I like its solid stability and a rock-solid balance sheet.

The stock has been beaten down on account of the 40% fall in earnings witnessed in FY19. However, I believe that the fall is temporary in nature and the stock should see a sharp jump as soon as parity is restored.

The company has strong cash flows as well with the company distributing close to 70% cash left over after accounting for working capital and capex needs. And by the way there is no debt involved as it is almost a zero debt company over the last many years.

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INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
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DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
  2. Equitymaster holds 1 share of Banco Products as per the guidelines prescribed by the Board of Directors of the Company. The investment is made for research purposes only.
  3. Equitymaster has no other financial interest in Banco Products.
  4. Neither Equitymaster, its Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  5. Neither Equitymaster, its Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  6. Neither Equitymaster, its Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
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