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B. Krishnkumar

INDIA Nippon Electricals' performance has improved for the quarter-ended December 2002. For the three months ended December 2002, the turnover rose 47 per cent to Rs 45.07 crore.

Much of the growth in turnover is explained by the robust demand for motorcycles. India Nippon makes electronic ignition system for two-wheelers, three-wheelers and gensets. India Nippon has a major exposure to the two-wheeler segment, which accounts for over 70 per cent of the total earnings. The company caters to the requirements of almost all two-wheeler producers, including Bajaj, TVS Motor, Hero Honda, Yamaha and Honda Scooters.

The 27 per cent growth in motorcycles sales mainly helped the company record a 47 per cent growth in turnover for the third quarter.

Considering that TVS Motor is the top customer for India Nippon, the robust demand for Victor and Max 100 models has had a positive impact for India Nippon.

The persistent efforts to reduce cost have resulted in an improvement in operating profit margin to 24 per cent from about 21.6 per cent in the third quarter of previous fiscal.

The expansion of production facilities at Rewari unit, in particular, has pushed up the depreciation cost for India Nippon.

The increase in increase in turnover and improvement in profitability has helped the company record a healthy 54 per cent rise in post-tax earnings for the quarter ended December 2002.

The company appears well-positioned to coast along with the sustained growth in demand for motorcycles. Two-wheeler majors — Bajaj, TVS and Hero Honda — have recorded improved sales volume for January, which indicates that the recent growth trend is still in force.

While the demand has been robust, the competition in the two-wheeler market is getting stiffer with companies coming up with model launches at a more frequent pace.

As a result, India Nippon will also face pressures from buyers to supply at finer rates.

Going forward, the growth in business volume would be the key driver of demand for India Nippon as the scope for expansion in profitability is likely to be limited beyond a point.

The strong in-house research and development capabilities and the technological backing of the Japanese partner, Kokusan Denki, should help the company retain its prominent position in the industry. The bagging of orders for new models, including the popular ones such as a Victor and Pulsar, indicates its competitive edge.

On the flip side, any slowdown in TVS Motor's performance could affect India Nippon's growth rate.

This was already reflected in the company's 2000-01 performance when the post-tax earnings grew a modest 16 per cent despite a 20 per cent increase in motorcycle sales during this period. The sharp slowdown in motorcycle sales volume and the consequent erosion in market share of TVS Motor affected the growth rate of India Nippon in 2000-01. The growth rates have turned more impressive in the recent quarters owing to the sharp growth in demand for TVS Motor's Victor model.

From an investment perspective, the company appears well-positioned to exploit any growth in demand flowing from growth in the two-wheeler segment. The recent bonus offering has pushed up the equity capital to Rs 8.08 crore. This has imparted some degree of liquidity to the stock. Long-term investors could contemplate equity exposure in the company at the current price of Rs 183.

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