Banco Products (India) Ltd (BPIL) is a leading manufacturer of gaskets and radiators that find use in sealing and cooling applications in automotive and industrial engines.
S Nitin
Banco Products (India) Ltd (BPIL) is a leading manufacturer of gaskets and radiators that find use in sealing and cooling applications in automotive and industrial engines.
It has four modern manufacturing plants near Vadodra at Bil and Ankhi. BPIL has an agreement with Japan Metal Gaskets Co on need-based technical know-how and recently allotted the company 4.5% of equity to further strengthen relations.
A growing export market (almost one-third of its sales come from exports to European markets) and a focus on new products, especially aluminium radiators, augurs well for BPIL.
Business: BPIL caters to three sectors - automotive, earth moving & construction and industrial sector. Automotive forms a huge 65% of the sales, while the earth moving & construction and industrial sectors contribute 20% and 15% respectively. On the business segment, 54% comes from domestic OEM (original equipment manufacturing) and 33% and 13% is contributed by exports and domestic after-market, respectively.
Gaskets: BPIL is India’s second-largest automotive gaskets manufacturer with OEM supplies to Maruti Suzuki, Bajaj Auto, and Hero Honda. It has installed capacity for making 8 crore gaskets a year, out of which it is producing 5.75 crore per annum now. Almost 28% revenue comes from this division alone.
The gaskets division provides sealing solutions for every conceivable application like automotive, industrial and agricultural, earthmoving and locomotive.
Radiators: The radiator division contributes 70% of BPIL’s sales. Installed capacity is for 4,000 industrial radiators and 762,000 aluminum and copper-brass automotive radiators per year.
BPIL supplies to all major OEMs in India and some leading companies in Europe. It’s client list includes Tata Motors, Ashok Leyland, Mahindra & Mahindra, Caterpillar, John Deere, Indian Railways and Case New Holland.
Compressed Fibre Jointing Sheets: Apart from gaskets and radiators, BPIL also manufactures compressed jointing sheets using non-asbestos raw materials which are environment friendly. It also exports all varieties of compressed fibre jointing sheets.
Investment rationale: There is growing demand for radiators in Europe and also in the domestic OEM segment. Sensing huge oportunities, BPIL has invested in capcity and new product development. We expect overall growth in coming years for BPIL. The company has a well diversified business segment. While construction and infrastructure segment shows good growth prospects backed by huge opportunity in the infrastructure sector, the industrial and automotive market is also expected to remain strong going forward.
Risks and concerns: Competition in auto industry has forced manufacturers to cut costs to maintain profitability. BPIL’s gasket division seems to be stagnating as there is little growth in comparison with radiators. While the company is strong in the OEM segment, its presence in replacement market has remained stagnant. Unorganised players, who control a major part of the replacement market, are also a major threat.
Valuation: At the current market price of Rs41.6 the stock trades at 10x its estimated FY08 earnings and at 8.4x its estimated FY09 earnings. We believe it is a good long term bet and investors can seek a decent upside from these levels.
Disclaimer: The author does not hold any shares in the company
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