CG Igarashi:A good buy

Anup Menon

Recommendation: Trading at around Rs 31.75, the stock of CG Igarashi Motors (CGIM) is a good buy for investors with a moderate to low risk profile.

The stock discounts its latest annualised earnings per share around 5 times. Apart from a good financial performance for the first half of fiscal 2000-2001 the company rests on strong fundamentals with prospects of logging in fairly good growth rates. In this backdrop, fresh investments can be considered at present levels.

Earnings performance: The earnings performance for the first half of fiscal 2000-2001 has been fairly impressive. Sales revenues have risen by around 57 per cent to Rs 40.36 crore as compared to the same period in the previous year. Operating margins have been fairly steady at around 16 per cent. Post-tax earnings nearly doubled to around Rs 3.45 crore. On an equity base of Rs 11.90 crore, the annualised earnings per share of the company works out to around Rs 6.

Business: CGIM is in the business of manufacturing electric micro-meters, rotors, accessories and spares. The products find applications in a wide range of industries, including automobiles, power tools and household equipment. A significant portion of its revenues is derived from the automobile sector. It has a technical collaboration with Igarashi Motors, Japan.

Prospects: The prospects for the company in the near future looks fairly good. In terms of future growth, the company is well-placed. It operates in a fairly large market which is growing at around 6 per cent. CGIM has also been steadily growing over the last couple of years in terms of revenues and asset base.

The company has given importance to enhancing its presence in the markets through capacity expansions and developing its client base through geographic diversification. CGIM follows an aggressive pricing strategy which has had a positive impact on its performance. For instance, the company has been reducing prices for at the rate of about 5 per cent per annum in the last four years.

Its performance is linked to some extent on the depreciation of the rupee. With its focus on exports, any depreciation in the rupee adds to the bottomline of the company. On the other side of the coin, the company used to have a fairly large import bill on account of raw material imports. However, in the past, the company has consistently been a net foreign exchange earner. This apart, it also faces price risk associated with a key raw material, copper. CGIM has been reducing its import content in the raw material mix thereby steadily reducing its market risk on account of price fluctuations.

Overall, the prospects for the company in the near to medium term look bright. A deterrent to valuation could be the low level of liquidity. However, this is not likely to have a significant impact. Investors can consider taking fresh exposures keeping in mind a fairly long investment horizon.