Strong strategic alliances and technical tie-ups. Diversified Clientele base. Strong Financial Performance over the years

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1 S t o c k I d e a Date: 04-May -12 CMP: `139 TARGET: `204 Upside: 47% B U Y SENSEX NIFTY 5087 Eq. Cap. (` Crs) Face Value (`) 10.0 M. Cap (` Crs) `261 BSE Code NSE Code Financial Year HITECHGEAR Apr-Mar 52-w H/L 165/104 Avg. Daily Vol. 4,253 TTM EPS (`) TTM P/E (x) 6.2x BVPS (`) P/BVPS (x) 2.8x Stock vs. Sensex Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai HI-TECH GEARS LTD. (HGL) Incorporated in 1986, Hi-Tech Gears Ltd (HGL) is a part of HI-TECH Group and is in the business of manufacturing transmission related auto components such as Gears, Shafts, Flanges for 2-Wheelers, 4-Wheelers and engines, in addition to Precision forgings. Strong strategic alliances and technical tie-ups HGL Group has strategic alliances and technical tie-ups with M/s Mushashi Auto Parts Ltd, Japan (a subsidiary of Honda Motor Co.) and Getrag Corporation, USA for supplying components to OEMs worldwide. HGL has tied up with Kyushu Musashi to manufacture closed-die forgings in India. This particular product is a raw material for transmission gears and shafts. Key beneficiary of the sustained growth in the automobile segment HGL manufactures transmission related auto components such as Gears, Shafts, Flanges for 2-Wheelers and 4-Wheelers engines especially in diesel engines. The company has been servicing diverse clients across the globe for engine and transmission components produced to the most exacting standards. HGL supplies gears and turned blanks for all models of Hero MotoCorp, its biggest customer (~60% of revenue contribution). New Unit to start contributing to revenue from FY13E HGL which continues to focus on future technologies and sustainable manufacturing has set up another state of the art plant, near the mother plant in Bhiwadi, Rajasthan which is expected to be functional at its full capacity during FY13E. The new unit will commence the commercial production of transmission auto components for commercial vehicles (CVs) as well as passenger vehicles. T&EC business to augur well on the back of growing demand for diesel engines Transmission & Engine Components (T&EC) is one of the business vertical that contributes ~15% of HGL business. The company manufactures primarily timing gears for diesel engines for light, medium & heavy commercial / off-highway vehicles and transmission gears & shafts for 4- Wheeler vehicles and other applications. Diversified Clientele base HGL supplies the products to well known customers Hero Honda, Cummins, Cater Pillar, Bosch, New Holland, Honda, Lister Petter etc covering Asia, Europe, North America and South America continents. Strong Financial Performance over the years Revenue CAGR of 12% over FY07-11 EBITDA CAGR of 24% over FY07-11 Net Profit CABGR of 43% over FY07-11 Consistent in dividend payment since FY1997 and also declared Bonus (1:1 ratio) 3 times in past (FY2000, FY2005, FY2010) Average Dividend payout is ~32% over FY At the CMP of `139.0, the stock is trading at 5.4x its FY13E EPS of ` We recommend BUY on the stock with a months target price of `204, providing an upside of 47% from the current levels. Please Refer DISCLAIMER on the Last Page

2 Company Profile Incorporated in 1986, Hi-Tech Gears Ltd (HGL) is a part of HI-TECH Group and is in the business of manufacturing transmission related auto components such as Gears, Shafts, Flanges for 2-Wheelers, 4-Wheelers and engines, in addition to Precision forgings. The Group HI-TECH GROUP HGL has a joint venture (50:50) with M/s Getrag Corporation for supplying components to OEMs worldwide. HGL has a joint venture (50:50) with M/s Getrag Corporation of USA, termed as Getrag Hi-Tech Gears India Ltd. for supplying components to OEMs worldwide. Hi-Tech esoft - the Engineering Solution division of Hi-Tech Group offers CAD/CAM/CAE services & Engineering Products through the latest technology and a state-of-art infrastructure. Products offered are for Design, CAD Customization, for Manufacturing, FEA (finite element analysis), Simulation, Engineering Animations, Software development and Product Life Cycle Management. Hi-Tech Robotics Systemz Ltd. is engaged in R&D and manufacturing of Robots - Micro and Industrial, Unmanned Ground and Air Vehicles, Automotive Embedded Vision and Safety Solutions, RFID (Radiofrequency identification) solutions. Manufacturing Facilities HGL caters to the need of various customers through 3 Plants namely, Hi-Tech Gears Ltd (Bhiwadi), Getrag Hi-Tech Gears (India) Pvt Ltd (Bhiwadi) and Hi-Tech Gears Ltd (Manesar). They are located near New Delhi, (with in the distance of 45 to 75 Kilometers) and commenced the operations from year 1987, 2000 and 2005 respectively. All the plants are certified for Quality Management System (ISO/TS 16949), Environmental Management System (ISO 14000) and Safety and Health Management System (OHSAS 18000). Hi-Tech Gears Ltd May-2012

3 The Products & Capacities INVESTMENT POSITIVES Key-beneficiary of the sustained growth in the automobile segment HGL supplies gears and turned blanks for all models of Hero MotoCorp, its biggest customer (~60% of revenue contribution) HGL manufactures transmission related auto components such as Gears, Shafts, Flanges for 2-Wheelers and 4-Wheelers engines especially in diesel engines. The company has been servicing diverse clients across the globe for engine and transmission components produced to the most exacting standards. With automobile sales numbers in the domestic market continued to grow despite price hikes, HGL is well poised to see volume growth. New Unit to start contributing to revenue from FY13E HGL which continues to focus on future technologies and sustainable manufacturing has set up another state of the art plant, near the mother plant in Bhiwadi, Rajasthan which is expected to be functional at its full capacity during FY13E. This facility is an ECOFAC Plant, and is meant to be a sustainable green manufacturing plant. This unit is registered with the Indian Green Building Council as a pilot project and has many energy conservation features that will help the company save energy cost. The new unit will commence the commercial production of transmission auto components for commercial vehicles (CVs) as well as passenger vehicles. Dependence on the 2-Wheeler segment has decreased In the recent past, HGL has won new businesses in UK & Brazil and its exports to the USA have also increased. As a result, the company posted strong export sales of Rs Crs in FY11 (~21% of total sales) with an Hi-Tech Gears Ltd May-2012

4 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 Exports contributes over 20% of the total turnover increase of 84% y-o-y as compared to export sales of Rs Crs in FY10. As a result of it, HGL s dependence on the 2-Wheeler segment has decreased as compared to the prior years. T&EC business to augur well on the back of growing demand for diesel engines Transmission & Engine Components (T&EC) is one of the business vertical that contributes ~15% of HGL business. The company manufactures primarily timing gears for diesel engines for light, medium & heavy commercial / off-highway vehicles and transmission gears & shafts for 4-Wheeler vehicles and other applications. This business vertical is having a wide customer base that includes some of the most prestigious OEMs with spread around the globe including USA and Europe. Realisation per Unit has been increasing consistently 110 Realization per unit (`) Diversified clientele base Growing demand for Diesel engines to augur well for HGL HGL supplies the products to well known customers Hero Honda, Cummins, Cater Pillar, Bosch, New Holland, Honda, Lister Petter etc covering Asia, Europe, North America and South America continents. Hi-Tech Gears Ltd May-2012

5 Major clients for HGL are Hero MotoCrop, Tata, JCB India Ltd, Daimler India Ltd, etc. Strategic alliances and technical tie-ups HGL Group has strategic alliances and technical tie-ups with M/s Mushashi Auto Parts Ltd, Japan (a subsidiary of Honda Motor Co.) and Getrag Corporation, USA. HGL has tied up with Kyushu Musashi to manufacture closed-die forgings in India. This particular product is a raw material for transmission gears and shafts. Awarded many times for Quality and export excellence Hi-Tech Gears Ltd May-2012

6 (%) FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 (%) Strong Dividend and Bonus history Strong Dividend Track record Consistent in dividend payment since FY1997 and also declared Bonus (1:1 ratio) 3 times in past (FY2000, FY2005, FY2010) Average Dividend Payout is ~32% 5 0 Strong Financial performance over the years Return ratios Revenue CAGR of 12% over FY07-11 EBITDA CAGR of 24% over FY Net Profit CAGR of 43% over FY FY2009 FY2010 FY2011 ROCE ROE PEER GROUP COMPARISION CONCERNS Rising steel prices (as it s the primary raw material) continue to be a challenge and pose a threat to the margins of the company in this competitive auto component sector. Hi-Tech Gears Ltd May-2012

7 VALUATIONS At the CMP of `139.0, the stock is trading at 5.4x its FY13E EPS of ` We recommend BUY on the stock with a months target price of `204, providing an upside of 47% from the current levels., Capitaline Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai Tel. (022) , Fax (022) research@lmspl.com LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. Hi-Tech Gears Ltd May-2012