Bulk Deal Alert: Rakesh Jhunjhunwala Adds 1% Stake in this Auto Ancillary Stock, Triggering 20% Rally

Follow the money, follow the talent - this is a saying as old as adage in the investing community.

The idea is to follow the best talent out there and where their money is flowing. You track what the big names in the investing world are buying and selling.

Historically this has proven to be a great strategy.

This week on Wednesday, one of the top investing gurus in India, Rakesh Jhunjhunwala & Associates, picked stake in a microcap auto ancillary stock via a bulk deal.

A Word About Rakesh Jhunjhunwala

Rakesh Jhunjhunwala was an Indian billionaire stock trader and investor.

He used to manage his portfolio as a partner in his asset management firm, Rare Enterprises. He invested in both his own and his wife's name, Rekha Jhunjhunwala. He held the designation of Chartered Accountant.

Rakesh Jhunjhunwala was known as "India's Warren Buffett." According to Forbes, Jhunjhunwala was the 36th richest man in the country. He was worth Rs 460 bn when he passed away on 14 August 2022.

He was a director on the boards of several companies, including Viceroy Hotels, Concord Biotech, Provogue India, and Geojit Financial Services.

Which Auto-Ancillary Stock did Rakesh Jhunjhunwala & Associates Buy and Why?

The stock in question is Him Teknoforge, erstwhile known as Gujarat Automotive Gears.

According to data available on the exchanges, Rekha Jhunjhunwala, wife of late Rakesh Jhunjhunwala, via Rakesh Jhunjhunwala and Associates, acquired 90,006 shares in the company via a bulk deal on Wednesday, 29 November 2023.

This translates to around 1.1% stake in the auto ancillary company.

While we don't know why they added shares of Him Teknoforge, there are some reasons that we can guess...

Super investors in India like to buy shares of a company which is established in its segment and has a long growth runway.

For Him Teknoforge, the company has more than 40 years of experience in the industry it operates in. Over the years, the company has built a strong clientele including M&M, Ashok Leyland, Bharat Gears, Brakes India, among others.

It also supplies to tractor manufacturers such as Ve Commercial Vehicles and Sonalika Industries.

So having an established market position in the industry for niche products could be one reason which drove Rakesh Jhunjhunwala towards the stock.

The other reason could be the steady performance Him Teknoforge has posted in the past five years.

It has reported steady growth in revenue and profit, more so in the past two years amid increase in orders from OEMs driven by recovery in demand in the entire automobile sector.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	3237.9	2231.1	2389.0	3516.5	4064.6
Growth (%)	21%	-31%	7%	47%	16%
Operating Profit	384.6	295.2	332.5	390.1	438.6
OPM (%)	12%	13%	14%	11%	11%
Net Profit	183.0	32.5	51.4	88.3	106.8
Net Margin (%)	6%	1%	2%	3%	3%
ROE (%)	13.0	2.2	3.4	5.6	6.4
ROCE (%)	14.6	7.5	8.1	9.6	10.6
Dividend (Rs)	1.0	0.2	0.4	0.4	0.4
Debt to Equity (x)	0.85	0.87	0.98	0.93	0.85

Data Source: Ace Equity

Apart from deriving revenue from domestic clients, the company also exports to multiple countries including Germany, Italy, UK, Egypt, Sri Lanka, Singapore, Malaysia, etc.

The company also pays consistent dividends to shareholders.

So steady financials can be the other reason why Rakesh Jhunjhunwala's firm bought into the counter.

One more reason we could think about is high growth prospects of the auto ancillary sector.

The auto ancillary sector is poised for growth and post Covid, the auto sector has seen a strong pent-up demand which will indeed benefit the companies who are involved in auto components manufacturing.

According to the Automobile Component Manufacturers Association (ACMA), exports of automobile components from India are projected to reach US$ 80 billion (bn) by 2026.

The Indian auto components industry has set ambitious goals, aiming to achieve US$ 200 bn in revenue by 2026.

These developments are expected to significantly enhance the company's performance.

How Him Teknoforge Share Price has Performed Recently

Reacting to the bulk deal, shares of the company were locked in the 20% upper circuit on 29 November 2023.

In the past one month, shares of Him Teknoforge have gained over 27%. While in the year gone by, shares are up around 47%.

Him Teknoforge has a 52-week high of Rs 155 touched on 10 August 2023 and a 52-week low of Rs 73 touched on 27 March 2023.

At the current price, the company trades at a PE multiple of 13.9x and a price to book value multiple of 0.6x.

Here's a table comparing Him Teknoforge with its peers.

Comparative Analysis

Company	Him Teknoforge	RACL Geartech	Shivam Autotech	Talbros Eng
ROE (%)	6.4	25.1	-28.6	26.4
ROCE (%)	10.6	21.7	3.2	22.8
Latest EPS (Rs)	10.6	37.6	-2.8	41.1
TTM PE (x)	13.9	31.6	-	17.9
TTM Price to book (x)	0.6	6.9	4.6	2.9
Dividend yield (%)	0.3	0.1	0.0	0.3
Industry PE	42.3
Industry PB	3.7

Data Source: Ace Equity

About Him Teknoforge

Incorporated in 1973, Him Teknoforge does manufacturing, sales, distribution and marketing of automotive, nonautomotive and engineering components.

It's a manufacturer of auto and tractor components which it markets under the brand name KAG.

To know more, check out Him Teknoforge's 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...