Federal-Mogul Goetze – Turnaround Story 

We rate Federal-Mogul Goetze a BUY. Established in 1954 as a JV with Goetze-Werke of Germany. The company is the largest manufacturer of pistons and piston rings in India varying from 30mm to 300mm diameter through its facilities at Bangalore, Patiala and Bhiwadi. Caters to wide range of applications including two/three-wheelers, cars, SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and high output locomotive diesel engines. Goetze and Goetze Brico provide leading-edge technologies and competitive solutions for original equipment manufacturers and the automotive aftermarket. During Q3 2009, net sales increased by 17% y-o-y to INR2,044
million. PAT stood at INR237 million, which showed a robust growth compared to net loss of INR29 million during Q3 2008.

Investment Highlights

Balanced approach. It operates mainly in two segments i.e. OEM’s and the aftermarket. It is working towards stabilizing revenue and grow its market share presence in the product lines where it competes. This means OEM’s, OEM spare part market share expansion and continuing to drive additional share growth and market penetration in the aftermarket. Having a balanced approach to the OEM’s and aftermarket helps it in capitalizing on its strengths in both segments and to react to market fluctuations and customer strategies.

Drive for sustainable growth. Federal-Mogul continues its drive for sustainable growth by focusing on the long-term and expects that the current down turn will result in consolidation opportunities. It is adapting to successfully compete in difficult market conditions. It expects to revitalize in near future and is preparing for growth as consumers regain confidence and vehicle demand increases.

Wide distribution network. The company has a wide distribution network and is a major player in the pistons segment. It manufactures diverse range of piston and piston rings with industry leading OE activity and a strong aftermarket business with widely recognized brands and a strong distribution network. It is adapting through technology upgradation to successfully compete in difficult market conditions.