With the automotive sector speeding up as demand continues to accelerate, auto ancillary companies have a lot of steam still left. One such company that has been at the forefront of adopting new technologies for electric vehicles as well as automatic transmission in the passenger utility vehicle segment is the new comer to the capital market and is making an IPO is: Divgi TorqTransfer Systems (Divgi-TTS). But should you invest in the Divgi IPO?
Divgi-TTS is an auto ancillary player that has the capability to develop and provide system level transfer case, torque coupler and dual-clutch transmission (DCT) solutions. In fact, Divgi-TTS is the largest supplier of transfer case systems to passenger vehicle original equipment manufacturers in India.
In fact, Divgi has developed transmission systems specifically for electric vehicles with Tata Motors. The firm is both a systems level solution provider as well as a component kit supplier to domestic, global OEMs and Tier I transmission system suppliers.
Divgi also has the technical capabilities to develop and manufacture mission critical components in transmission space, manual transmission components for electric vehicles. The firm also has key clients namely M&M and Tata Motors.
Divgi-TTS has three manufacturing assembling facilities in India with one under construction for EV transmission and dual clutch transmission (DCT) and expected to be fully completed by FY24.
Divgi’s financial profile is healthy. With a gross margin of around 60% and earnings before interest tax depreciation and amortization margins of 28%, the company enjoys one of the highest margins in the auto ancillary space. It also has a high net profit margin of around 20%, and return on capital employed of over 15%. Besides, its balance sheet is also debt-free.
Over the coming years, Divgi has the capability to increase share of exports in sales, as well as target a growth of at least 20% in the coming years, according to analysts.
“We assign subscribe for long term rating on Divgi given that our bet in on future growth trajectory at the company as trailing valuations disount much of its healthy financial profile. We like Divgi-TTS for its technical prowess in transmission space and incremental revenue streams coming on board going forward in EV transmission as well as dual-clutch transmission space,” says ICICI Direct in a note to clients.
