ZF Steering Gear is a small cap with a market capitalization of about Rs. 200 crores. ZF Steering Gear manufactures steering gears. While ZF Steering Gear has an installed capacity of 1,80,000 units of Mechanical Steering Gears, it has installed capacity of 2,70,000 units of Power Steering Gears and 50,000 units of Hydraulic Rack & Pinion Steering Gears per annum.
ZF Steering Gear, thanks to the robust demand, is increasing the capacity of Mechanical Steering Gear to 2,10,000 units and Power Steering Gear capacity to 3,00,000 units pa. ZF Steering Gear has a plant at Maharashtra. A German collaborator named Zahnradfabrik- Freidrichshafen has 26% stake in ZF Steering Gear. The other promoters are H. K. Firodia and J. H. Munot
| Rs in Cr. | Mar 2010 | Mar 2009 | Mar 2008 |
| Sales Turnover | 234.54 | 188.05 | 258.01 |
| Net Profit | 28.66 | 14.31 | 27.85 |
| Total Shareholder’s Funds | 135.56 | 116.01 | 109.13 |
| Total Debt | 28.41 | 22.73 | 21.83 |
| Earning Per Share ( Rs ) | 30.18 | 14.59 | 29.35 |
ZF Steering Gear‘s products are used in buses and heavy vehicles like dumpers. ZF Steering Gear supplies to original equipment manufacturers like Tata Motors, Force Motors, Ashok Leyland and Volvo India.
ZF Steering Gear is also setting up a 5MW solar power project in Gujarat.
ZF Steering Gear reported good results for the year ended 31st March 2010. The sales were Rs. 216 crores while the net profit was Rs. 28.66 crores reflecting a healthy margin of 13.27%. ZF Steering Gear has low debt with a debt : equity ratio of 0.20. ZF Steering Gear offers a Return on Equity (ROE) of about 23%. ZF Steering Gear‘s EPS for the year ended 31.3.2010 was Rs. 31.59.
ZF Steering’s Quarterly Results
| (Rs cr) | Dec 2010 | Dec 2009 | YOY |
|---|---|---|---|
| Operating Income | 74.69 | 58.71 | 27.22 |
| Total Expenses | 58.81 | 45.81 | 28.38 |
| Operating Profit | 15.88 | 12.90 | 23.10 |
| Other Income | 0.92 | 1.32 | -30.30 |
| PBDIT | 16.80 | 14.22 | 18.14 |
| PBT | 12.76 | 12.28 | 3.91 |
| Adjusted Net Profit | 8.76 | 8.21 | 6.70 |
ZF Steering Gear‘s Quarterly results for December 2010 were somewhat flat on a YOY basis. While the sales increased to Rs. 74 crores from Rs. 58 crores, the net profit stagnated at Rs. 8.76 crores as compared to Rs. 8.21 crores.
The EPS for the nine month period ended December 2010 was Rs. 33.03. By simple extrapolation, the EPS for the year ought to be around Rs. 44 which compares well to last year’s EPS of Rs. 31.59.
ZF Steering Gear‘s balance sheet shows that as of 30.9.2010, it had investments of Rs. 102 crores which means that the effective price one is paying for the stock is less by Rs. 118 per share.
ZF Steering Gear has a consistent track record of dividends. It paid 80% in FY 07 and FY 08 and 70% in FY 09. ZF Steering Gear resumed the 80% dividend in FY 2010.
At the CMP of Rs. 306, ZF Steering Gear is trading at 9.68 times the EPS of Rs. 31.59 of FY 2009-10. Assuming ZF Steering Gear reports an EPS of around Rs. 44 for FY 2010-11, the PE ratio is only about 6.95. Of course, if one deducts the cash component of Rs. 118 per share, the valuations are a steal.
ZF Steering Gear‘s dividend yield works out to about 2.61% which also adds comfort to the valuations and protects from further downside.
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