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Deeptha Rajkumar

Mumbai , Sept. 23

PERCEPTION of a strong earnings growth has been driving market interest in the stock of the Coimbatore-based company Shanthi Gears Ltd.

The stock, which has been witnessing good volumes, has appreciated by 14.28 per cent from around Rs 21 on September 1 to around Rs 24 on the bourses.

Brokers said the industrial gear market has come out of a recession period and is on the upmove.

"The user segment or the core sector industries are adding capex, looking at more investment for upgradation etc, hence the optimistic sentiment," reasoned a broker.

Shanthi Gears manufactures industrial gears, which includes boxes, motors and assemblies. The Rs 100-crore company is a leading player in the industrial gear market, where the organised sector accounts for 70 per cent market share.

It has modern facilities, which include a foundry, forge shop and facilities for fabrication and heat treatment and its gears (helical, ground, worm, differential, bevel and spiral) find application in steel, cement chemicals, textiles plastics thermal, stations, aviation and defence installations.

While there is not much replacement demand in this segment, given that it makes customised products, its cash flows are said to be very strong.

"It is a working capital intensive business; however the company gets credit at almost enviable rates given that it is the market leader in its segment," an analyst tracking the company said.

Analysts maintain that the company's strength lies in its ability to add on new customers and offer innovative products.

"Having moved up the value chain to produce customised power transmission products for niche applications, SGL by virtue of its continuous plant upgradation and expansion is well on its way to become the clear leader in the sector despite the presence of multinationals like Bongfiglioli," an analyst with a prominent domestic brokerage said.

According to analysts, the company, which currently does sales of around Rs 85 crore annually, is expected to grow at 30 per cent per annum over the next two years. Earnings growth has been pegged at least at 40 per cent over the next two years.

The stock ended the day at Rs 23.80, down 1.24 per cent, with around 1.28 lakh shares traded on the BSE. On the NSE, the stock closed at Rs 23.80, down 1.24 per cent, with around 3.08 lakh shares traded.

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