clutch auto

Clutch Auto Ltd (CAL) is the largest supplier ofclutches to the commercial vehicle and tractor segmentin India. It also caters to the passenger vehicle andreplacement demand and its clientele includes TataMotors, Ashok Leyland, Maruti Udyog, TAFE, Toyota,BEML, Escort Tractors and State TransportUndertakings, among others.We expect the company to witness a CAGR of 53.3% insales and 83.6% in profits between FY05 and FY08. Thestock is trading at a P/E of 8x FY08E earnings and aP/BV of 1.5x, which does not fully factor in theexpected high growth. The EV/EBIDTA too, looksattractive at 7.1x FY07E and 4.8x FY08E earnings. Werecommend a BUY with a one-year price target of Rs263,which represents an upside of 55.1%. Clutch is a technology intensive business dominated by6 players in the world, all operating either as jointventures or as technology partners or licensearrangements. CAL is the only standalone clutchcompany in the world, which is testimony to itstechnology capability.The company has ventured into the US truck marketthrough the aftermarket route making it the onlyoffshore company to be able to do so. It plans to be aniche player in the low volume, high value addedheavy-duty clutch segment for class 7 and 8 trucks.This is because, the replacement demand for trucks inUS, with a population of nearly 4.5-5mn units, isnearly as high (250,000 units pa) as the demand fornew trucks.CAL invested in technology, research and filed forpatents and trademarks for a number of products thatit developed. Today, the company is the onlyindependent component company from India with anindependent patents and trademarks portfolio. It hasbuilt many innovative products like the 'Cool Clutch','Whisper' and 'EZ N Lite' offering interchangeabilityunit-to-unit, component-to-component with the sameserviceability norms and tools.While the domestic market will ensure steady revenuesto the company, we expect high growth to come in fromthe export initiatives taken by the company.Presently, 25% of its revenues are on account ofexports. We expect this proportion to rise andcontribute to around 50% of revenues in the next 3-4years.The company increased its capacity for clutch discsand clutch cover assemblies by 122% and 200%respectively in FY05 to meet the growing demand forits products. The company has set up a strongdistribution network along with product liabilitycover for overseas market. It already received ordersfrom Fleet Pride, a leading heavy-duty class partsdistributor in the US