CG Igarashi Motors: Buy

Recommendation: Buy

Anup Menon

TRADING at around Rs 34, the stock of CG Igarashi Motors (CGIM) is a good investment option for a low-risk portfolio. It trades at a price earnings multiple of around four times its latest annualised earnings per share.

Though the upside on the stock has been rather limited over the last 12 months, the stability in prices also means lower risk for the investor. An important characteristic of the stock is it breaks out on the positive side in short bursts. Investors who want to time an exit based on the sudden spurts in prices should follow the stock closely.

Even otherwise, with an investment horizon of over 12 months, investors are likely to reap a healthy return on the stock. It is fundamentally sound and the earnings performance for the first half of this fiscal has been good. The company has been increasing its market share at the global level with several leading international automobile manufacturers forming part of the customer base. In this backdrop, the growth prospects in the near future look bright. Given the low risk and good prospects, investors can consider adding the stock to their portfolio. Investors can also look at liquidating their exposures in the Rs 40-45 range.

Earnings performance: The earnings performance for the half-year ended September 2001 has been fairly impressive. Sales revenues rose around 25 per cent to Rs 50.61 crore, compared to the corresponding previous period. Operating margins improved marginally from around 16 per cent to 17 per cent. In the same timeframe, post-tax earnings improved around 39 per cent to Rs 4.78 crore, compared to the same period, the previous year. On an equity base of Rs 11.9 crore, the annualised per share earnings work out to Rs 8.

Facts: The company manufactures permanent magnet micro motors. These find application in automobiles, power tools, household appliances and office equipment.

Prospects: The prospects for the company over the next few quarters look reasonably good. Topline growth will be an important valuation parameter for the stock in the future. Growth prospects depend on the automobile industry's performance. Over the last three months, the auto industry has been doing well, with off take registering improvements. This should lead to higher off take for the company too.

Given that the company's performance for the first half of the fiscal has been good, the improvement in the automobile sector should only have a further positive impact on the financials.

The other major plus for the company is the high level of exports in its turnover. The company has been expanding its customer profile recently. International players such as General Motors, Renault and Peugeot, among others, form part of the customer profile.

Being international players CGIM could be an important global sourcing point for its international clients. This, in turn, will contribute to a higher level of exports. This factor should be favourable to the stock's valuation. The overall performance over the next couple of quarters is likely to be good.

In this backdrop, investors with a low risk profile and willing to look at an investment horizon above six months can consider buying the stock at the current levels.