Shanthi Gears posts a drop in second-quarter profit1 min read . Updated: 25 Oct 2012, 02:41 PM IST
This is the second consecutive quarter where profit has fallen owing to a drop in demand
Chennai: Shanthi Gears Ltd, India’s second-largest industrial gearbox maker, on Thursday posted a 20% drop in second-quarter profit as demand for its products continued to slow.
“The company’s results have been disappointing because it is dependent on demand from industries such as power, textile and steel, which have been poor," said Rajen Shah, chief investment officer at Angel Broking Ltd.
The Coimbatore-based Shanthi Gears posted a profit of ₹ 5.7 crore for the three months ended September compared with ₹ 7.1 crore a year earlier. Revenue fell to ₹ 37.98 crore from ₹ 41.68 crore. The numbers were in line with analyst estimates.
This is the second consecutive quarter where profit has fallen owing to a drop in demand. Shah expects the results to improve in the fourth quarter, and said demand is already showing signs of picking up.
Chennai-based Tube Investments of India Ltd—part of the $4.4 billion Murugappa Group—purchased 36 million shares in Shanthi Gears for ₹ 292 crore, or ₹ 81 per share, a month ago, representing a 44.12% stake. It has offered to buy an additional 21.24 million shares, or another 26% stake, from the public in the four-decade-old gearbox maker at the same price. The open offer closes on 31 October.
This is likely to help Tube Investments, a maker of bicycles and automotive parts, enter the energy and infrastructure business, as Shanthi Gears manufactures a range of standardized and customized gears for the steel, textiles, cement, infrastructure, power and wind energy sectors.
Shah says once the open offer comes to an end, the stock price will come down to levels of ₹ 60, which would be a good time to buy the stock as it could then rise to levels of ₹ 90 a share in a span of 18 months.
Since the approval of the purchase of shares on 13 July, Shanthi Gears stock has risen 21.07% on BSE, outpacing the benchmark Sensex’s 8.64% gain. Shares of the company were marginally up at ₹ 72.75 on BSE in morning trade on Thursday.