The Hindu Business Line : Value buying gears up Dynamatic Tech

Dynamatic Technologies is the market leader in hydraulic gear pumps with its main customer segment being the domestic tractor segment where it controls virtually 80 per cent of the market.

While the stock has been transferred to the `T' group from October 7 because of the recent run up in the stock price, it continues to attract investors' interest on the perception that it is trading at a discount to other auto component players, say brokers.

"It is not speculative but a fundamental story at play here. Besides, the market is looking at growth beyond FY06," said a market source.

The stock has seen a sharp uptrend from around Rs 53.50 levels as on August 2 to its current levels of Rs 188.

Analysts maintain that despite competitive pressures in the auto component space, the company is all set to report a significant jump in profits, which the market has not fully discounted in the present share price. Future growth is expected from its automotive business JKM Dae Rim Automotive Ltd (JDAL) that is expected to deliver strong volume growth.

According to a Kotak Securities report, going forward, exports are to be an important growth driver. The export ramp up is likely to be reflected in the third and fourth quarters.

"JDAL recently bagged export business from Ford, Tenneco and John Deere US and expects exports to account for 10 per cent of revenues over the next two years from three per cent currently. We estimate combined exports to reach Rs 19.50 crore in FY05E and Rs 33 crore in FY06E, respectively.

"Moving forward, we expect Dynamatic to consolidate its position within the auto component and engineering sectors and estimate consolidated topline and net profits to grow at a CAGR of 34 per cent and 52 per cent respectively, over the next two years (fiscal 2004-06) with ROCE and RONW improving to 23 per cent and 36 per cent by FY05E," adds the report.

On the domestic front, JDAL has evolved into a leading manufacturer and OEM supplier of auto components to carmakers such as Hyundai India, Tata Motors, Fiat India, Mahindra & Mahindra and Hindustan Motors. Going forward, its business with Hyundai will be the main trigger at this counter, say analysts.

Promoted by the Bangalore-based J K Malhoutra family, Dynamatic has business interests in hydraulic gear pumps, hydraulic valves, non-ferrous alloy castings and automotive components. Additionally, it has undertaken initiatives within the domestic aerospace segment.

The stock ended the day at Rs 187.95, up 5 per cent, with around 2,840 shares traded on the BSE.

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