Stock Review: ZF Steering

They are makers of mechanical and power steering system and is supplying to all four-wheelers which includes cars, SUVs and even commercial vehicles and tractors. If you see their financial performance for FY11, they have posted a growth of about 36% in their topline and 40% in their bottomline with topline being at Rs 300 crore, PAT of about Rs 41 crore, EPS at Rs 45 and cash EPS of Rs 62.

If we go by the shareholding pattern, the company has a German collaboration on their financials and technical's and of the 73% promoter stake, 27% is held by the German collaborator and remaining 46% is held by the Indian promoter that is Firodias.

The company has been consistently increasing their PAT margin every year maybe by about 50 bps or 100 bps. So, one can say that the volume growth is mainly driving the bottomline of the company without having any dent on their margin. The same trend is likely to continue because we are going to see the sales of the vehicles remaining constant and maybe at a growth of 5-7%. Taking all these into consideration, the share at Rs 318 looks quite good.

If you take Rs 50 also, as a conservative EPS for FY12 it is ruling at a PE multiple of close to about 6. So maybe the share should be able to give you a rate of about Rs 400 in the next six months time from hereon.