Banco Products Fundamental Analysis: An undervalued power performer

February 24, 2018 6 Ankit Shrivastav


Banco Products is the supplier of high quality engine cooling components and engine cooling gaskets and offers a complete range of cooling solutions such as radiators, intercoolers, oil-coolers and engine gaskets. Company caters to a variety of automobiles such as agricultural vehicles, diesel commercial vehicles, cars and pick-up trucks, intercoolers, industrial radiators.

Company has a large portfolio of reputed brands as clients, including Mahindra & Mahindra, Ashok Leyland, Maruti Suzuki, Tata Motors. Company also exports its products to Europe, Singapore, UK and Australia.

Revenue Break Up:

As mentioned earlier, company provides cooling solutions for various automobiles. Banco Products provides two types of radiators. Aluminium and Copper. Aluminium radiators are major contributors to the revenue which is about 78% of the sales of the company, while copper radiators contribute about 20% of the total revenue. Other than these, company also exports some of its products to Europe and other countries.

Net Operating Revenue:

Net Operating Revenue is the Net revenue generated by the business solely from its core operations, after deducting the cost of sales and other expenses.

Banco Products revenue have seen little growth in the past 5 years, from Rs. 377.77 crores in 2013, to Rs. 502.1 crores in 2017, a CAGR growth of around 3%. Since companys business i largely dependent on the automobile sector, any stagnation in the auto sector impact the companys sales and revenue. Something similar happened in the financial years 2014-15 when stagnation in sale in auto sector affected the companys revenues. However, the company has been able to improve its profitability in the past 5 years.

Net Profit:

Net profit is also referred to as bottom line, net income and net earnings. Net profit is the part of company’s total revenue left after paying for operating expenses, taxes, interests, preferred stock dividends.

Banco Product has posted encouraging profit growth despite sluggish sales growth in the past. In the last 5 years, while the sales grew at 3% CAGR, Net profits showed a better growth of 25% CAGR. This is a sign of efficient operations and financial management by the company and their ability to optimize cost and resources in difficult times.

Basic Earnings Per Share(BEPS):

Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.

Banco Products per share earnings have increased at 25% CAGR in the past 5 years, a growth similar to the net profit of the company. Company’s profits have seen a jump in the latest quarter which is mainly due to rise in demand for automobiles.

Net Profit Margins:

Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.

Company’s Net Profit Margins have seen good growth in the past 5 years, from 7.81% in 2013, to 20.72% in 2017. Improvement in profit margins is a powerful indicator that company is able to optimize the cost of doing business without compromising the quality of product or service.

Return on Capital Employed(ROCE):

ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.

Banco Products ROCE has doubled in the last 5 years from 10.36% in 2013, to 20.39% in 2017, which is an indicator of efficient capital allocation.

Debt to Equity:

Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds).

Banco Products was funded by 40% debt and 60% equity in 2013. In 2016, company paid back all its debt, and became a debt free company.

Future Plans of Banco Products:

Banco products has 5 decades of experience of manufacturing OEM for various automobile companies, Company has already developed design for BS-IV compliant cooling components, Company is also working towards developing cooling components that will comply with next generation norms.

Company is already working for many Multinational automobile brands and is ?also looking to expand its export market, by leveraging their capabilities and grow international business by acquiring new international orders via existing and new clients.

Company is optimistic on India story, as emerging markets need better infrastructure to support economic activity, there will be higher demand for heavy duty commercial vehicles, mining machines and equipment and other automobiles. All these are seen as great opportunity by Banco Products which can be used to expand its domestic business.

SWOT Analysis of Banco Products:

Here is the detailed SWOT analysis of Banco Products:


Banco Products has more than 5 decade long experience of manufacturing automobile cooling solutions, the management is aware about the latest updates in the automobile industry, and have the ability to make necessary technological up-gradation in order to stay ahead in the game. Company is an OEM(Original Equipment Manufacturer) for many reputed automobile companies. Company is looking to acquire more clients for its OEM business domestically and abroad as well. Company has extensive product range used in variety of automobiles such as light commercial vehicles, heavy duty commercial vehicles, mining machines. Company also manufactures critical components in house, because of which provides ability to make any changes in specifications as per clients requirements.


One of the biggest strengths of the company is also one of the biggest weakness of the company. Since Banco Products deals in a wide range of products, catering to every clients creates lot of complexities that the company has to deal with, which sometimes affects the quality and on time delivery of ?products.

Company is completely dependent on automobile industry for its business, which poses a risk, any downtrand in the automobile sector will hurt the sales and profitability of the company. Company is working towards de risking its business by creating a broader base for their customer portfolio.


As mentioned earlier, an emerging economy like India requires more automobiles, which presents a great opportunity for the market. With rising demand for energy efficient engines that comply with strict emission norms, company can acquire new clients and use its technological expertise to provide better solutions. Banco Products is already trying to capture the international export market, which will create better opportunities and higher sales for the company.


Banco products may face business threat from other competitors, especially those who can provide quality at a lower price. Most auto manufacturers look for suppliers that can provide quality components at rock bottom price, because of which, maintaining profit margins becomes a challenge.

Banco Products manufactures two types of cooling components, Aluminium and copper.

Since large part of Banco Products production cost is composed of raw material, any rise in price of raw material used will shrink the margins of the company.

Secondly. Company generates 25-30% of its revenue from export market and is looking to expand its revenue from exports in the future. This poses a forex risk, where a strong rupee will affect companys forex profits.

Should I invest in Banco Products at current price?

If we look at the past performance of Banco Products, company has posted 25% growth in Net profits, and similar growth in EPS. Company has also paid back all its debt and is currently debt free. Despite such an encouraging performance, companys stock is trading at a P/E of 15 per share (current market price Rs. 227 per share), which is lowest among the peers.

Based on the past performance and current valuation of the company, we will make assumption on the best case and the worst case scenario.

Worst Case Scenario:

In the worst case scenario, we expect the stock to give a return of 15.5% for the next 5 years, which means, by year 2022 the stock price of Banco Products may reach Rs. 560 per share. ?

Best case Scenario:

In the best case scenario, we expect the stock to give a return of 32% per annum for the next 5 years, which means that by year 2022, the stock price of Banco Products will touch the price of Rs. 1,323 per share.

Total Comments ( 6 )

  1. SK says:

    Ankit, can you please explain how did you calculate the approx expected returns in Best & Worst case? What exactly is the Best & Worst case which you have assumed? Please elaborate.

    • Ankit Shrivastav says:

      We use DCF model (Discounted Cash Flow) for projecting the future growth of the company. Based on the past 5 years of FCF (free cash flow) data, we project the future FCF. For the worst case we adjust the FCF against highest inflation rate and interest rate in the past 5 years. For the best case, we adjust the FCF against lowest inflation and interest rates.

      Hope this was helpful

  2. Holly says:

    brother, they are in business of combustible engines part, these engines are going to vanish in few years, I dont think they are in production of sustainable parts of cars. Any thoughts? I dont visualize growth in business i.e. new capacities to justify increase in EPS

  3. Kamlesh says:

    Thanks, very informative post

  4. Hemanth says:

    Very good analysis…Thanks sir