CG Igarashi Motors: Buy

Recommendation: Buy

B. Krishnakumar

The company makes permanent magnet DC micromotors.

It has a technical-cum-financial collaboration with Igarashi Electric Motors, Japan. The products are used in diverse industries, which include automobiles, power tools, office equipment and household appliances. The company derives a major chunk of its revenues from the automobile sector.

Financially, the company has posted a steady growth in performance in the recent years. After an initial phase of low capacity utilisation and sluggish demand, the company managed to post an impressive turnaround. The turnaround in operations and the improvement in performance has been underpinned by the implementation of aggressive capacity expansion projects and conscious efforts to broad-base its consumer and geographic profile. What is important is that the company has managed, over the last two years, to maintain good growth rates on an steadily increasing base of turnover and earnings.

These factors coupled with aggressive pricing strategy have helped the company gain recognition in the competitive export market. CG Igarashi Motors has also taken steps to move up the value-chain. This will result in better realisations and tap the new market segment as well.

The positive impact of these factors is reflected in the sustained growth in performance in recent quarters. For the year-ended March 2000, the company posted a 57 per cent growth in turnover to Rs 57.53 crore, while the post-tax earnings rose 120 per cent to Rs 5.11 crore. On the equity base of Rs 11.90 crore, the per share earning works out to Rs 4.29.

The company caters to a huge market, which is slated to grow at about 5-6 per cent per annum. Given this backdrop, the growth prospects for CG Igarashi Motors appear encouraging. The company's positive outlook is also reflected in the sharp growth in earnings in the first two quarters of this year.

For the six months ended September 2000, the company's turnover grew by 57 per cent to Rs 40.36 crore while the post-tax earnings improved 78 per cent to Rs 3.45 crore. With its focus largely on exports, the company would also stand to benefit from a depreciation in the value of the rupee.

Given the product range and the exposure to diverse range of industries, the company appears well-positioned to post a steady growth in performance. Though the low floating stock is a damper from the investment standpoint, the strong fundamentals and growth prospects would help the company's share price settle at higher levels over a period of time. For investors with some degree of patience, the stock could prove a paying proposition.