At a Glance
Murugappa’s little gear wizard, Shanthi Gears Ltd, reported Q1 FY26 with a modest 4.8% profit growth but a 2.8% dip in revenue. Stock tanked 5% to ₹554, because even when gears mesh perfectly, the market wants turbochargers. With a P/E of 44x, investors are wondering – are we buying gears or gold-plated ones?
Introduction
Shanthi Gears designs, manufactures, and services industrial gears that keep factories humming. Backed by Tube Investments of India (Murugappa Group), it’s positioned in niche engineering – small size, big margins. But this quarter, revenue slowdown and a high valuation dented sentiment. The company remains debt-free, but the market seems to have shifted to neutral.
Business Model (WTF Do They Even Do?)
- Core: Gearboxes and gear systems for industrial machinery.
- Clients: Heavy industries, automation, and engineering firms.
- Moat: Custom solutions, strong after-sales, Murugappa parentage.
- Revenue Mix: Standard gearboxes, custom high-value gear systems, services.
Verdict: The company sells “tooth wheels” that make big machines move – think of it as the dentist for factories.
Financials Overview
Q1 FY26 Snapshot
- Revenue: ₹134.9 Cr (-2.8% YoY)
- EBITDA: ₹31 Cr (OPM 23%)
- PAT: ₹23 Cr (+4.8% YoY)
- EPS: ₹2.96
FY25 Recap
- Revenue: ₹605 Cr
- PAT: ₹97 Cr
- ROE: 25.6%
- ROCE: 34.9%
Commentary: Margins steady, but growth slowing. Orders need revving up.
Valuation
- P/E Method
- EPS (TTM): ₹12.7
- Industry P/E: ~35x
- Fair Value ≈ ₹12.7 × 35 = ₹445
- P/B Method
- Book Value: ₹52.5
- CMP/BV: 10.5x
- Fair Value ≈ ₹400–₹500
- DCF (Engineering Reality)
- Conservative growth assumptions give a range of ₹450–₹550.
🎯 Fair Value Range: ₹450 – ₹550
CMP ₹554 is at the upper band, not a bargain.
What’s Cooking – News, Triggers, Drama
- Order Book: Stable but not stellar.
- Capex: Minimal; focus on efficiency upgrades.
- Dividend: 40% payout – consistent PSU-like returns.
- Triggers: Industrial recovery, Murugappa’s cross-leverage in EV gears.
Balance Sheet
| (₹ Cr) | Mar 2025 |
|---|---|
| Assets | 504 |
| Liabilities | 101 |
| Net Worth | 395 |
| Borrowings | 0 |
Remarks: Zero debt, healthy reserves – balance sheet cleaner than a showroom gearbox.
Cash Flow – Sab Number Game Hai
| (₹ Cr) | FY23 | FY24 | FY25 |
|---|---|---|---|
| Operating | 63 | 36 | 91 |
| Investing | -26 | -12 | -38 |
| Financing | -23 | -39 | -38 |
Remarks: Solid cash generation, investing in small upgrades.
Ratios – Sexy or Stressy?
| Metric | Value |
|---|---|
| ROE | 25.6% |
| ROCE | 34.9% |
| P/E | 43.9x |
| PAT Margin | 17% |
| D/E | 0.0 |
Remarks: ROE & ROCE sexy, but valuation screaming “priced for perfection”.
P&L Breakdown – Show Me the Money
| (₹ Cr) | FY23 | FY24 | FY25 |
|---|---|---|---|
| Revenue | 446 | 536 | 605 |
| EBITDA | 90 | 102 | 129 |
| PAT | 67 | 82 | 97 |
Remarks: Strong earnings growth streak; Q1 hints at fatigue.
Peer Comparison
| Company | Revenue (₹ Cr) | PAT (₹ Cr) | P/E |
|---|---|---|---|
| Kaynes Tech | 2,722 | 293 | 129x |
| Honeywell Auto | 4,190 | 524 | 65x |
| Shanthi Gears | 601 | 97 | 44x |
Remarks: Valuation high compared to revenue size, but growth keeps it afloat.
Miscellaneous – Shareholding, Promoters
- Promoters: 70.5% (Murugappa Group)
- FIIs: 3.3%
- DIIs: 0.5%
- Public: 25.8%
Observation: High promoter holding = low float, hence volatile moves.
EduInvesting Verdict™
Shanthi Gears is a high-quality, high-valuation engineering play. Debt-free, dividend-friendly, and part of Murugappa’s empire, it’s a darling of quality investors. However, slowing topline and rich P/E make it vulnerable to corrections.
SWOT Quickie
- Strengths: Zero debt, high ROE/ROCE, Murugappa backing.
- Weaknesses: Slowing revenue, valuation stretched.
- Opportunities: Industrial capex cycle, EV gear expansion.
- Threats: Order delays, global slowdown, high expectations.
Final Word: At ₹554, the gears are well-oiled but priced like luxury watches. Great business, okay stock entry only below ₹500.
Written by EduInvesting Team | 30 July 2025
SEO Tags: Shanthi Gears Q1 FY26, Murugappa Group Stocks, Industrial Manufacturing Analysis
