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Wednesday, June 8, 2011

Small Cap Stock To Buy - Fiem Industries

I recently came across discussion about this small cap stock that I felt could be a multi bagger stock in next few years. I thought to do some stock research to find out why this could be a stock to buy for long term.

Fiem Industries Limited is a company in the business of automotive components. It manufactures and supplies auto components (automotive lighting and signally equipments being major components), rearview mirror, prismatic mirror, sheet metal parts and moulds, and block and dies for two-wheeler and four wheeler components.

Fiem industries has formed a JV with Ichikoh Industries, Japan for four wheel and two wheel lamp business. Fiem will hold 34% stake in this JV. Company has signed two memorandoms with Ichikoh Industries Limited of Japan, which is having a worldwide Alliance with Valeo of France called Ichikoh-Valeo Alliance, the worlds No. one manufacturer of Automotive Lighting and Signaling Equipments.

First MoU is for setting-up a Joint Venture Company for manufacturing of Automotive Lighting & Signaling Equipments for catering to four-wheeler OEM Customers both in Northern and Eastern India. Second MoU is for forming a Strategic Global Fiem-Ichikoh Alliance for acquiring the 2-Wheeler Automotive Lighting business in worldwide market. Under this Alliance, Fiem Industries Limited and Ichikoh Industries Limited will tap global 2-Wheeler Automotive Lighting business by strategic use of core competencies, manufacturing facilities, technical expertise, and sales network of both the companies.

With Ichikoh forming JV with Fiem, Fiem will get technological benefits from Japanese company. This should translate into better business opportunities, higher revenues and profits in future.

Company has acquired a new Industrial Plot measuring in June,2010 in Industrial Area Tapukara, Distt. Alwar in Rajasthan. This is strategically located in close proximity to upcoming new Factory of Honda Motorcycle and Scooter India Pvt. Ltd. and existing factory of Honda Siel Cars India Ltd. In this plant, company will set up the facilities of Injection Molding and Paint Shop for which the construction has already been started.

With these developments going on in company, once Ichikoh alliance starts contributing to company’s financials, stock should definitely get re-rated in stock markets considering growth.

Stock Valuation:
At current stock price of Rs.158, the stock trades at 12 month trailing P/E of 16.52 Company is expected to post EPS of more than 12 for next year. With this EPS consideration and similar valuations, stock price target could be Rs.198 for one year time period. If you consider joint venture with Ichikoh and new opportunities generated by this JV, there could be huge growth for Fiem.

One may buy stocks of Fiem at current price and at dips for long term capital appreciation.

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