01 — At a Glance
The Gear Box That Got Stuck in Reverse
- 52-Week High / Low₹621 / ₹386
- Q3 FY26 Revenue₹117 Cr
- Q3 FY26 PAT₹16.2 Cr
- Q3 EPS₹2.11
- Annualised EPS (Q3×4)₹8.44
- Book Value₹56.3
- Price to Book7.83x
- Dividend Yield1.14%
- Debt / Equity0.00x
- Order Book Status₹249 Cr+
Auditor’s Opening Note: Shanthi Gears closed Q3 FY26 with ₹117 crore revenue (-25.8% YoY), ₹16.2 crore PAT (-34% YoY), 34.9% ROCE, and a solid order book of ₹249 crore. The stock? Down 20.7% in 6 months. Meanwhile, they just fired the CFO (effective 19-Mar-2026). The interim dividend of ₹3/share is nice. The questions are spicier.
02 — Introduction
The Murugappa Poster Child That’s Having a Bad Hair Day
Shanthi Gears is not supposed to exist in a world where its revenue falls 25.8% quarter-over-quarter. This is a company backed by Tube Investments (TIIL), the flagship of the 124-year-old Murugappa Group — a business empire with ₹77,881 crore turnover spanning agriculture, EVs, auto components, abrasives, finance, and engineering. TIIL owns 70.46%. In family business terms, that’s “we are not selling, this is our playground.”
For fifty years, Shanthi Gears has been designing, manufacturing, and servicing industrial gears — the kind that spin in cement plants, mines, lifts, railways, and steel factories. Not exciting. Not trendy. Absolutely essential. These are not fashion accessories; these are the gears that keep Indian industry humming. Market dominance isn’t their thing; customer intimacy is. Their top 10 customers represent 33.3% of revenues (FY24), but they supply 1,000+ clients across diversified sectors. No single dependency. Just consistent mediocrity, and they were cool with that.
Then came the capex dream. In January 2023, Shanthi Gears agreed to purchase land in Sanand, Gujarat for a manufacturing expansion. The order book swelled to ₹340+ crore by Q1 FY25. Growth was 20% CAGR over 5 years. Revenue grew 59% between FY22 to FY24. Everything pointed to an inflection. Industry reports, analyst notes, investor presentations — all screaming “this time is different.”
Then Q3 FY26 happened. Revenue fell 25.8%. Profit fell 34%. The order book still exists. The plants still work. The clients are still there. But execution? Something broke. Was it client concentration issues? Raw material chaos? Execution delays? Board minutes remain quiet. CFO resigned 19 March 2026. And here we are, trying to decode a gear-box that suddenly sounds like it’s grinding metal.
January 2026 Board Note: “Interim dividend ₹3/share… CFO to resign effective 19 March 2026.” Sometimes what a board doesn’t say is louder than what it does.
03 — Business Model: They Make the Bits That Make Factories Work
Gears. And More Gears. Industrial Strength Gears.
The business is simple. Industrial machinery everywhere needs gears to transmit power and motion. Shanthi Gears manufactures custom gearboxes, loose gears, worm gearboxes, and helical gearboxes — all precision-engineered to customer spec. They operate three manufacturing facilities and a foundry in and around Coimbatore, Tamil Nadu. Domestic revenues represent 92% (FY24); exports just 8%.
Revenue is split two ways: replacement segment (55.3% in FY25) and original equipment manufacturers (OEM segment, 44.7%). Replacement is the bread-and-butter — when a gear wears out, you call Shanthi. OEM is the bulk order — when you’re building a new plant, you call them for design-engineer-supply-commission contracts. Both have different margins, different cyclicality, different risk profiles.
They serve general engineering (23%), mining & mineral processing (21%), off-highway vehicles (13%), rubber & plastics extrusion (9%), power generation (8%), and scattered clients in steel, railways, cement, textiles, chemical. Top 10 customers = 33.3% of FY24 revenues. This is wide-net diversification — exactly what you want to hedge cyclical risk. Except when the whole cycle turns down simultaneously. Then diversification doesn’t help; it just slows your bleed.
Domestic Mix92%FY24 Revenues
Replacement Seg55.3%FY25 Revenue
OEM Segment44.7%FY25 Revenue
Order Book₹249 Cr+Q2 FY26
Sanand Capex Reality Check: Shanthi Gears is building a new facility in Gujarat to expand gear manufacturing. Construction capex, machinery import, hiring, ramp-up — typically 18-24 months before meaningful revenue contribution. Meanwhile, Coimbatore facilities are running below optimal utilisation due to weak demand in Q3. Classic case of “building for next year while bleeding through today.”
💬 Question: If the order book is ₹249 crore, and quarterly revenue is ₹117 crore, why can’t they execute? Demand destruction? Supply chain issues? Management capacity? What’s your theory?
04 — Financials Overview: The Q3 FY26 Plot Twist
Revenue Down 26%. Profit Down 34%. Questions Way Up.
Result type: Quarterly Results | Q3 FY26 EPS: ₹2.11 | Annualised EPS (Q3×4): ₹8.44 | Q3 FY25 EPS: ₹2.80
| Metric (₹ Cr) |
Q3 FY26
Dec 2025 |
Q3 FY25
Dec 2024 |
Q2 FY26
Sep 2025 |
YoY % |
QoQ % |
| Revenue | 117 | 158 | 132 | -25.8% | -11.4% |
| Operating Profit | 23 | 35 | 27 | -34.3% | -14.8% |
| OPM % | 20% | 22% | 20% | -200 bps | Flat |
| PAT | 16.2 | 24.5 | 21.5 | -33.9% | -24.7% |
| EPS (₹) | 2.11 | 3.20 | 2.80 | -34.1% | -24.6% |
The Math is Screaming: Q3 FY26 EPS ₹2.11 × 4 = Annualised ₹8.44. Current P/E = 440 ÷ 10.8 (TTM EPS from screener) = 40.7x. That’s not a premium valuation; that’s a hope premium. The company is valued on historical FY25 momentum (EPS ₹12.52, P/E 35x was justified). But Q3 is telling a different story. Revenue is contracting, margin is compressing (OPM from 22% to 20%), and execution risk has landed hard. Did management guidance miss? Did client orders pause? Was the Sanand capex more disruptive than expected? The quarterly results document is silent on causation.
05 — Valuation: Fair Value Range
What’s This Gear Company Actually Worth?
Method 1: P/E Based
FY25 full-year EPS ₹12.52. TTM EPS ₹10.80 (reflecting Q3 weakness). Industrial capital goods companies trade at 18x–28x sector average. Shanthi’s 34.9% ROCE justifies premium. Fair P/E band: 24x–32x on normalized earnings.
Range: ₹259 – ₹346 (using TTM EPS ₹10.80)
Method 2: EV/EBITDA Based
FY25 EBITDA ~₹139 Cr (OPM 23% × Revenue ₹605 Cr). Current EV ₹3,303 Cr. EV/EBITDA = 23.7x. Industrial engineering peers trade 14x–20x. Shanthi’s premium justified by order book + ROCE. Fair range: 16x–22x EBITDA.
EV range (16x–22x): ₹2,224 Cr – ₹3,058 Cr → Per share (accounting for net cash ~₹135 Cr):
Range: ₹285 – ₹392
Method 3: DCF Based
FY25 Operating CF ₹91 Cr. Assume revenue normalization to ₹550–600 Cr (post Sanand ramp), growth 6–8% for 5 years, terminal 3%. WACC 10%.
→ PV of 5-year FCFs: ~₹430 Cr
→ Terminal Value: ~₹2,550 Cr
→ Total EV: ~₹2,980 Cr (conservative case)
Range: ₹240 – ₹380
Fair Min: ₹240
CMP: ₹440
Fair Max: ₹392
CMP ₹440
⚠️ EduInvesting Fair Value Range: ₹240 – ₹392. CMP ₹440 sits above fair value. The stock is pricing in strong recovery from Sanand capex ramp and normalization of execution. The recent CFO resignation, Q3 revenue decline, and margin compression increase execution risk significantly. This fair value range is for educational purposes only and is not investment advice. Please consult a SEBI-registered investment advisor before making any financial decision.
06 — What’s Cooking: The Drama Unfolds
Sanand Dreams, CFO Reality Slaps
