The Hindu Business Line : Sundaram Clayton: Buy

TAKING into account the thrust towards exports and the overall growth prospects, investors with a long-term perspective may buy the stock of Sundaram Clayton. The company would be a beneficiary of the increased production of automobiles, particularly commercial vehicles. With automobile production on the rise this fiscal as well, Sundaram Clayton may see a steady growth in earnings.

The company is the market leader in the air brake systems market and caters to almost all major players in the industry, including Ashok Leyland and Tata Engineering. The company has a major exposure to the commercial vehicles segment. The air braking systems division contributes over 60 per cent of the turnover.

As a result, its performance tends to fluctuate in sync with the trend in commercial vehicle production. Helped by robust growth in commercial vehicles production, the company recorded an improved performance for the year-ended March 2004. Net turnover rose 40 per cent to Rs 417.4 crore and post-tax earnings 33 per cent to Rs 46.8 crore.

While the air brake equipment division is still the mainstay of the company, the contribution of the die-castings division improved over the years. This dilutes Sundaram Clayton's exposure to the commercial vehicles market. The company supplies castings to Hyundai, Ford India, Volvo and TVS Motor, among others. This division contributed Rs 169 crore to the gross turnover of Rs 488.6 crore.

The company has also made progress in the export of castings as well; exports rose to Rs 19 crore in 2003-04 (close to 5 per cent of turnover) from Rs 2 crore the year before.

To cater to the growing demand for the castings division, the company is expanding the capacity of the division. Besides, it is also relocating the air brake equipment facility to a new location within Chennai. This would help the company expand its facilities for the castings division. The new plant is expected to be commissioned by the end of this year. Sundaram Clayton is also expanding the capacity of its castings division and plans to invest about Rs 75 crore this fiscal.

The performance in the first quarter of this fiscal is a pointer that the company is on a healthy growth trajectory. Turnover rose 46 per cent to Rs 117.7 crore and post-tax earnings 38 per cent to Rs 14.3 crore.

The efforts undertaken over the recent years are likely to translate into steady growth in earnings. The company has also developed the advanced anti-lock braking systems, the demand for which is likely to increase when stricter safety regulation norms are in place.

It is also focussed on expanding its product and customer base that would act as a major growth trigger in the future.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Investment Quiz

Telecom majors slash tariffs

Taking stock of retail brands

Evaluation check-list

Steel prices: Tinkering with tariffs makes little sense

Ideas packaged as stocks

PruICICI Growth: Sell

Magnum Taxgain: Hold

Sundaram Select Focus

SBI Magnum declares 30pc dividend