Showcasing Technological Advancements At Bharat Mobility Global Expo 2025 Will Strengthen Future Global Presence

Key Takeaways

• Showcasing advanced products and feasibility for local production positions Divgi TorqTransfer Systems for revenue growth and improved margins through scale and localization.
  
• Growing international presence and advanced EV developments expand revenue streams, supporting stable earnings amidst market transitions.
  
• High dependency on key partners and reduced EV demand threaten revenue stability and future growth, alongside risks from competitive pressures and export process delays.

Catalysts

Engages in the manufacture and sale of transfer cases, automatic locking hubs, and synchronizers and components to automotive OEMs in India, the United States, China, Mexico, the United Kingdom, Germany, Sweden, Thailand, South Korea, and internationally.

• The presentation of next-generation products at the Bharat Mobility Global Expo 2025 is expected to boost future revenue as Divgi TorqTransfer Systems showcases its technological advancements to global automotive OEMs and Tier 1 companies.
  
• The feasibility study for local production of over 200,000 automatic transmissions in India by 2027 is a significant catalyst that could substantially increase revenue and improve net margins through localization and enhanced scale.
  
• Securing new export business from China indicates a growing international presence, which can expand revenue streams and improve earnings through diversified markets.
  
• Development of a 3-in-1 electric drive unit and advances in dedicated hybrid transmissions position the company to capture growth in the EV segment, which could potentially increase revenues and stabilize earnings as the market transitions.
  
• The consistent growth in the component business, driven by strong domestic and international orders, supports revenue growth potential and indicates improved net margins through higher-margin technological solutions.

Divgi TorqTransfer Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Divgi TorqTransfer Systems's revenue will grow by 18.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.7% today to 18.7% in 3 years time.
• Analysts expect earnings to reach ₹729.9 million (and earnings per share of ₹21.23) by about January 2028, up from ₹323.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.7x on those 2028 earnings, down from 54.7x today. This future PE is greater than the current PE for the IN Auto Components industry at 28.6x.
• Analysts expect the number of shares outstanding to grow by 3.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.48%, as per the Simply Wall St company report.

Divgi TorqTransfer Systems Future Earnings Per Share Growth

Risks

• The company's core transfer case business has experienced a 29% decrease, and this lower volume uptake from major OEM customers has significantly impacted revenue, leading to a 12% decline in total income year-on-year.
  
• Reduced sales to major partners like Tata due to a slackening in EV demand contributes to flat revenues and affects future profitability, particularly if trends of low uptake in key segments persist.
  
• High dependency on a few key partners such as Mahindra for specific products presents a risk of revenue fluctuation if partnerships or order volumes are reduced, which can affect the earnings stability.
  
• The significant delay in component exports approval process, despite recent successes, risks impacting the anticipated revenue from international markets and putting future growth projections at risk.
  
• Competitive pressures in the dynamic and potentially volatile EV and hybrid spaces, alongside the need for heavy investment to maintain technological leadership, could squeeze margins and net earnings if the anticipated demand does not materialize.

Valuation

• The analysts have a consensus price target of ₹656.0 for Divgi TorqTransfer Systems based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹3.9 billion, earnings will come to ₹729.9 million, and it would be trading on a PE ratio of 44.7x, assuming you use a discount rate of 13.5%.
  
• Given the current share price of ₹578.85, the analyst's price target of ₹656.0 is 11.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.