The Hindu Business Line : MICO: Book profit and re-enter at lower levels

AIDED by sharp growth in earnings, the MICO share price has moved by about 27 per cent since our earlier buy recommendation (Business Line, January 3, 2003).

Existing holders can use further rise in the share price to book profits in Motor Industries Company.

Well-known as a maker of spark-plugs, MICO's product range includes fuel injection systems, power tools and other auto electrical products. Spark-plugs are used predominantly in two- wheelers and portable gensets, and the fuel injection system in diesel engines.

The company has a major exposure to the automobile sector, in particular commercial vehicles and tractors. Considering that the bulk of its revenue flows from the original equipment segment, the company's earnings move in sync with the overall trend in automobile production.

After a listless performance for the year ended December 2001, MICO's earnings saw steady growth in 2002.

The improvement in the commercial vehicle production along with the spurt in motorcycle sales revved up its performance.

For the year ended December 2002, the turnover rose by about 7 per cent to Rs 1,550.7 crore. The post-tax earnings shot up by about 64 per cent to Rs 134.1 crore. On the equity base of Rs 32.0 crore, the per share earning works out to Rs 416.

To reduce the exposure to the OE segment of the automobile industry, the company ventured into such other businesses as power tools and automobile accessories as also car audio systems. MICO has also taken efforts to enhance its presence in the export market.

The trend in earnings growth has spilled over to the current year as well.

For the quarter ended March 2003, the turnover rose 17 per cent to Rs 432.1 crore while post-tax earnings almost doubled to Rs 52.3 crore (Rs 25.65 crore).

The company's performance would improve further as and when compliance with Euro II auto emission norms is made mandatory across the country. In anticipation of higher demand for fuel injection systems, MICO has completed major capital expenditure projects.

The MICO share price has appreciated by about 27 per cent in the past few months. Taking into account the recent growth in earnings and the strong fundamentals, there appears to be some scope for further appreciation in the share price from the current level of Rs 4,250.

However, considering the recent increase in share price, shareholders could lock-in some profits by diluting at least a part of their exposures on upticks.

Fresh exposure may be considered on intermittent price declines or on evidence of steady increase in automobile production.

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