Khambatta Securities Gives Buy Call on G G Engineering

BSE listed G G Engineering (An authorized OEM for Tata motors), has been given a buy call by Khambatta Securities. G G Engineering Limited (Code 540614) was established in 2006 to cater to the rising demand of quality sheet metal and heavy steel products. The company’s flagship products include smart Reverse Vending Machines (RVMs), sheet metal components for commercial air-conditioners, and industrial diesel generator sets.

G G Engineering Limited - Reverse Vending Machines

Inspired by the Swachh Bharat Abhiyan, GGE launched India’s first fully-automated and smart RVMs for crushing/shredding PET bottles with the objective of enabling environment-friendly disposal of plastic waste. The company also manufactures sheet metal air conditioning components with powder coating for Tata Group’s Voltas and is the only approved vendor for the OEM’s Vadodara unit. Voltas outsources components for its commercial AC range at the Vadodara facility, where commercial-use ACs of 10 tons and higher sizes are manufactured, which are installed in malls, airports, corporate offices and other commercial facilities.

GGE further specializes in custom-built enclosure generator sets, driven by Tata Motors engines, for both stationary and mobile applications with its latest series of gensets equipped with engines applying quantum techniques to enhance durability and stability. The company also supplies industrial engines for various applications, marine engines, and spare parts for diesel genset to the local and International markets. Most recently, the company has launched pathogen-protection products in the wake of the COVID-19 pandemic for defense against the novel coronavirus and other deadly pathogens. This range of products includes sanitizing tunnels, touchless hand sanitizer stations, and mask vending machines.

“State-of-the-art plant, marquee clients, and strong distribution in Western India are key positives. GGE’s state-of-the-art manufacturing facility with an area of 40,000 sq. ft. is strategically located in the industrial hub of Bharuch in Gujarat. The plant enabled with CAD and in-house R&D facility has an annual capacity of 5,100 units and customization capabilities across product categories. The company has a wide distribution network in Western India with 12 distributors and 6 customer service agencies across Gujarat and Maharashtra. GGE’s past and present clients/partners include some marquee names such as Tata Motors, Voltas, Panasonic, Indian Railways and Reliance Life Sciences as well as emerging companies such as Ganesha Ecosphere, Gem Enviro Management and Wild West Media,” the report further added.

Commenting on the valuations, the report said, “At 15.0x FY22E EPS of Rs. 6.00, we rate GGE a BUY with a target price of Rs. 90 and an upside potential of 42%. We have modelled exponential topline growth in FY21 and FY22, enabled by strong traction from RVMs and advertising revenues, healthy volumes of legacy products, and contribution from personal protection products. We expect FY22 revenue growth to normalize but still remain robust. The strong revenue growth and increasing contribution from advertising will generate operating leverage, leading to margin expansion from the operating through the PAT levels. ROCE and ROE are expected to see solid gains as a result. We also expect solid cash flow generation to enable the company to reduce its debt, leading to further fall in debt-to-equity ratio. Basis the robust earnings growth forecast, the GGE stock trades at an attractive forward P/E level of 10.6x FY22E EPS. Valuing at 15.0x FY22E EPS of Rs. 6.00, our target price of Rs. 90 informs a BUY rating with an upside potential of 42%.”