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B. Krishnakumar

THE recovery in the automobile sector has had a positive impact on the financial performance of quite a few auto ancillary companies. Motherson Sumi Systems is one such company.Taking into account the continued increase in commercial vehicle and passenger car production, the company's performance is expected to improve further this fiscal. Long-term investors could contemplate equity exposure in the company.

Motherson Sumi Systems is a major producer of wiring harness system. This division accounts for about 70 per cent of the revenues. The company also has an elastomer division, making rubber components, that accounts for about 10 per cent of the revenue and the balance 20 per cent comes from the electric wire, automotive technologies and computer components segment.

The automotive sector accounts for more than 80 per cent of the turnover. The company is a major supplier of wiring harness system to auto majors such as Maruti Udyog, Mahindra and Mahindra, and Tata Motors.

The recovery in the automobile industry in the past few quarters has had a positive impact on the company's performance.

For the year ended March 2003, the turnover rose 19 per cent to Rs 333.4 crore and post-tax earnings improved by 71 per cent to Rs 28.9 crore. On the equity base of Rs 15.6 crore (face value Rs 5), the per share earning works out to Rs 9.2.

The company's performance is expected to improve further with the sustained increase in automobile production, passenger cars, in particular. To reduce dependence on the automobile sector, the company has commenced supply of wiring harness to other sectors such as office automation products, domestic appliances and electrical equipments.

The positive impact of these developments is reflected in the form of a sharp improvement in the first quarter performance of the current fiscal. For the quarter ended June 2003, the turnover rose 33 per cent to Rs 96.5 crore and post-tax earnings by an impressive 190 per cent to Rs 10 crore.

While the company faces competition from global players such as Delphi and Tyco Electronics, the company still retains the dominant position in the industry. The fully integrated nature of operation gives Motherson Sumi a competitive edge. The company has integrated backwards to produce almost all critical inputs which helps it cater to a wide-cross section of customers within and outside of the automobile sector.

The company has also recently bagged an export order worth $125 million from Ford Motor for the supply of dashboards. Taking into account these factors, the company's performance is expected to improve further in the future.

Strong fundamentals, presence across a wide spectrum of industries and improved business prospects are positive features from an investment perspective. Long-term investors could contemplate equity exposure in this company.

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