Unlisted Shares

Driving Excellence in Automotive Driveshaft Manufacturing: GKN Driveline (India) Limited is a part of GKN Group, which is primarily in the business of manufacturing and sale of driveshafts to original equipment manufacturers in the automobile industry. It offers drive axle assembly and related products.

Revenue Growth: The company has witnessed a significant increase in revenue, escalating from ₹856.8 crore in FY22 to ₹986.3 crore in FY23, reflecting a growth rate of 15.1%. Because of lockdown constraints and poor performance of the automotive sector in FY20 and FY21, the six-year Compound Annual Growth Rate (CAGR) stands at -1.1%. The company is expected to achieve it's pre-covid sales level by FY24. 

Manufacturing KPIs: The company has demonstrated exceptional financial performance compared to its peers, with metrics such as cash conversion cycle (FY23: -12 days vs industry average of 77 days), debt-to-equity ratio (5 year average of 1.6% vs industry average of 72.8%), and asset turnover ratio (FY23: 1.6 vs industry average of 1.4) consistently exceeding industry averages.

Profitability Ratios: The ROE of the company stands to be at 26.8% vs industry average of 18.1% in FY23.

Backed by strong promoters: GKN Group, holding a 12% share in the worldwide automotive driveshaft market, offers assistance and direction to the company across various domains, including marketing, human resources, application engineering, supply management, and information technology. This support enables the company to enhance its competitiveness, elevate overall business performance. Notably, GKN Group maintains a substantial 97.03% ownership in the company.

Investment Thesis: In comparison to other companies in its industry, GKN Driveline. seems to be a bit overvalued, presenting an EV/EBITDA ratio of 13.0x (adjusted for a 20% discount due to its non-listed status). This valuation appears slightly above the current industry average of 10.2x, indicating an intrinsic value of the stock around ₹1,200-₹1,500 per share.

Most automakers (OEMs) are manufacturing driveshafts themselves, which is a form of backward integration. Furthermore, the company has a promoter holding of about 97%, and the promoters have consistently disbursed dividends that surpass the earnings in a given year, without retaining profits for reinvestment in the business. Additionally the company has performed poor in terms of Revenue and PAT growth as compared to the industry.