After Dividends, Bonus Shares Issue, Brokerage Optimistic In GNA Axles 17% Upside Seen

One of the leading manufacturers of automotive transmission components in the world, GNA Axles is well-poised for strong growth in the coming years, brokerage HDFC Securities said in its latest research report. The smallcap stock is a multi-bagger due to its robust upside in 5 years and has recently turned ex-dividend and ex-bonus. Apart from having a healthy business portfolio, the company has consistently rewarded shareholders with incentives like dividends and bonus shares.

According to HDFC Securities, GNA is a niche player in the auto-component segment with a strong brand, long-term relationship with clients and strong financials. The monsoon after a sluggish phase since early Sept has picked pace again and could offset fears of setbacks in rural economy, fuelling the growth of farm equipment. Recovery in the Indian MHCV truck segment will act as a tailwind for its growth trajectory.

As the company has limited competition in the same product range, and with the recent entry into the SUV market, the brokerage said, "We believe GNA is poised for strong growth in the coming years."

GNA Axles is the market leader in the off-highway segment, and meets 80% of the rear axle shaft requirements of OEMs in India, primarily because of its longstanding association with all major OEMs. Furthermore, to leverage its business relationships, GNA has entered into the SUV axle shafts business which would diversify its end-user segment.

Thereby, on valuation, HDFC Securities said, "Though the demand conditions in the export markets were challenging so far, there are early signs of turnaround. GNA could benefit due to this recovery and new SUV capacity. Reasonable valuation after the latest correction is another positive."

It added, "We expect Revenue/EBITDA/PAT of the company to grow at CAGR of 8/11/14% over FY23-FY25E on the back of higher volumes driven by higher CV sales in the domestic market and growing CV/SUV sales in the American market. We believe investors can buy the stock in the band of Rs 458-470 and add on dips in the Rs 410-420 band (10.5x FY25E EPS) for a base case fair value of Rs 508 (13x FY25E EPS) and bull case fair value of Rs 546 (14x FY25E EPS) over the next 2 quarters."

On Tuesday, GNA Axles shares stood at Rs 467.25 apiece, down by 1.2% on BSE. Its market cap was nearly Rs 2,005.94 crore.

From the current market price and HDFC Securities target price, GNA shares have a potential of nearly 17% in the next two quarters.

Year-to-date, GNA shares rallied by nearly 34% on the BSE. In 5 years span, the stock gained by a whopping 187% on the exchange.

Last month, GNA Axles turned ex-dividend for its payout of Rs 6 dividend per share. While the stock also turned ex-split for its share sub-division in the ratio of 1:1.