ACGL, whose promoters are Tata Motors and the Govt of Goa, is one of India's largest bus-body manufacturers. It also produces sheet metal components. But things just haven't gone ACGL's way. I honestly feel bad for the company's management.
- In 2007, the company raised money through a rights issue to double capacity. And then the global economic crisis hit. Talk about perfect timing! Bus exports fell and ACGL, with its expanded capacity and lesser demand, suffered a lot.
- The company had decided to move its sheet metal business to Pune, to make Goa a dedicated bus-body manufacturing operation, since the scale had increased. Of course, then the global economic crisis hit and this plan had to be shelved. The company has now bought a plot at Dharwad for this purpose.
- Well, things improved gradually and the company seemed to be limping back to normal. But then, Murphy's Law!! The labour union declared a strike and also prevented any workers from entering the premises. The seriousness of the strike can be judged from this article.
- This division has not performed efficiently. In 2009, the PBIT per bus body was down to a record level of Rs.35307/-. This was essentially because the company got more orders for smaller buses, in which margins are lesser.
- The current capacity of the division is 4800 bus bodies. The only thing lacking is orders!!! As and when the operations become normalised, the company should be able to sell at least 4500 bus bodies a year, generating PBIT of at least Rs.18 crores at Rs.40000 PBIT/bus body. Both these numbers have been deliberately taken on the lower side. (In fact, all requirements for hiking this capacity to 10000 bus bodies are complete).
- ACGL has strong promoters in the form of Tata Motors. TaMo has been supporting the company throughout its times of distress. TaMo has also increased its stake in ACGL over the last 2 years.
- The conservative valuation of ACGL works out to much more than the market cap.
- The business potential is huge. With rapid urbanisation and transportation requirements, large demand for buses is expected.
- Due of one reason or the other, historically, ACGL has failed to deliver and live up to its potential.
- Our valuation is at 'normalised' operations. When will the operations normalise? Well, thats anybody's guess. Absolutely no visibility is there.
- ACGL's promoters (Tata Motors) have a JV in India with one of the world's largest bus body manufacturers, Marcopolo. Details can be read here. In my view, this is a huge conflict of interest. The promoter has a JV, which competes directly with its subsidiary! So how does TaMo divide its business between its JV and its subsidiary? Not really clear. Big risk here..