Shanthi Gears quarterly profits halve, misses expectations1 min read . Updated: 30 Jul 2012, 06:00 PM IST
Shanthi Gears quarterly profits halve, misses expectations
Chennai: Shanthi Gears Ltd, India’s second-largest industrial gearbox maker, on Monday posted a 49% drop in first-quarter profit as demand for its products slowed.
“The results have been disappointing. The company’s 20% fall in net sales reflects lower sales order. The industry slowdown has had a direct impact on the company’s order book," said Neeraj Toshniwal, research analyst, SPA Capital Services Ltd.
Capacity utilisation for Shanthi Gears has fallen to 35-40% in the quarter from FY12 levels of 57.4%, said the analyst. He expects the company to post stronger earnings in the second half of FY13, when utilization levels are expected to rise to 65-70%.
The Coimbatore-based Shanthi Gears posted a profit of Rs3.58 crore versus in the three months ended 30 June compared with Rs7 crore in the year earlier. Revenue fell to Rs32.91 crore from Rs41.27 crore.
For the quarter ended 30 June, analysts on average were expecting profit of Rs6.8 crore on sales of Rs44.25 crore, according to Bloomberg.
On 13 July, the board of Tube Investments, a maker of bicycles and automotive parts, approved the purchase of 36 million shares in Shanthi Gears for Rs292 crore. Since the announcement, shares of the company have risen 6.97% while the benckmark Sensex dropped 2.18%.
A stake in Shanthi Gears is likely to help Tube Investments enter the energy and infrastructure space as Shanthi Gears manufactures a range of standardized and customised gears for the steel, textiles, cement, infrastructure, power and wind energy sectors.
Chennai-based Tube Investments—part of the $4.4 billion Murugappa Group— also plans to make an offer to acquire an additional 21.24 million shares, or an additional 26% stake, in the four-decade-old gearbox maker at the same price.
Shares of the company were marginally down by 0.4% to Rs67.25 on the Bombay Stock Exchange.
“The results have not affected the shares because people are holding to their shares because of the impending open offer," says Toshniwal. “After the integration with Tube Investments, Shanthi Gears’ capacity utilization is expected to reach 90%."
The purchase price of Rs81 per share is 19 times Shanthi Gears’ average expected earnings per share of Rs4.175 for fiscal 2013, according to Bloomberg.