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Our Take:

Banco Products India Ltd. (BPIL) has established track record and strong position in engine cooling modules catering to multiple end-user industries. It manufactures Engine Cooling Modules such as Radiators, Charged Air Coolers, Fuel Coolers, Oil Coolers, and Condensers. It offers both Copper Brass coolers and Aluminum coolers. Its products are used in Passenger Cars, Light Commercial Vehicles, Medium, and Heavy Commercial Vehicle, Agricultural Tractors, High-Performance Bikes, Harvesters,

Construction Machineries, Power Generation Equipment, Traction Rail locomotives, and other similar equipment. Its high level of integration in operations, diversified product portfolio, long-standing association with reputed clientele, established global operations in auto ancillary segment through its foreign subsidiaries and its distribution network in more than 80 countries are the key positives for the company.

Revival in the automobile industry should lead to higher demand for engine coolers. Nederlandse Radiateuren Fabriek B.V (NRF), is its wholly-owned subsidiary and is engaged in the business of manufacturing and distribution of heat transfer products like radiators, cooling systems, and a few others. BPIL has taken many initiatives to improve margins in its European subsidiary NRF over the last couple of years which should yield results in the coming years.

Banco Gaskets (India) Limited (BGIL), another subsidiary of BPIL, manufactures engine sealing systems (gaskets) and supplies to major auto-OEMs in India. Mr. Mehul K. Patel, the main promoter of BPIL has more than 40 years of experience in the automobile and autoancillary industry. A broad split among its end user industries is Automobiles (mainly CV) 50%, Earthmoving and construction equipment 20%, Industrial (25% and other (including Rail and Marine) 5%.

Valuations & Recommendation:

We expect BPIL revenue/EBITDA/PAT to grow at 14/21/26% CAGR over FY21-FY23, driven by revival in the auto industry and operating leverage. The company operates a net debt free cash rich balance sheet with Rs 122cr of cash. We believe investors can buy the stock in the band of Rs 210-214 and add on dips to Rs 186-190 band (7.5x FY23E EPS) for a base case fair value of Rs 240 (9.5x FY23E EPS) and bull case fair value of Rs 265 (10.5x FY23E EPS)

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