The Hindu Business Line : Sundram Fasteners: Buy

LONG-TERM investors may consider equity exposure in Sundram Fasteners. Strong fundamentals, healthy growth prospects and growing contribution from exports are major positives from an investment perspective.

Though the profitability could be under pressure owing to cost escalation, the growth in volumes is likely to act as a key engine of growth.

The company is among the leading producers of high tensile fasteners in the country. The product portfolio also encompasses products such as radiator caps, powder metal parts and cold extruded products.

Sundram Fasteners caters to the original equipment requirement of auto majors. It also has a presence in the domestic replacement market. Over the years it has expanded its product as well as customer base. The company's focus on exports is also positive.

Apart from the merger of Autolec Industries, the company acquired an auto component unit based in the UK last year.

It has also entered into a joint-venture agreement with Bleistahl of Germany for setting up a 100-per cent export-oriented unit. The commissioning of production facilities in China is another significant factor that has resulted in the dilution of the company's earnings concentration towards the domestic automobile industry.

As a result, exports have picked up momentum in the recent quarters. For the year ended March 2005, exports increased by 53 per cent to Rs 261 crore, accounting for about 28 per cent of the total income.

Helped by the robust growth in domestic automobile production, Sundram Fasteners has recorded steady growth in earnings in the recent years. For the year 2004-05, income increased by 35 per cent to Rs 930 crore. Post-tax earnings increased by a relatively modest 20 per cent to Rs 69.4 crore.

The pressure on profitability owing to the steep rise in price of raw materials was instrumental in capping earnings growth. As the price of these metals continue to rule, profitability is likely to be under pressure. This however is likely to be offset by the growth in volume.

The commissioning of expanded facilities and the growth in export income is likely to be key drivers of volume.

With the domestic automobile industry growing at a healthy pace, Sundram Fasteners appears to be well positioned to grow at a healthy pace.

The earnings growth would get a boost if the price of raw materials were to soften. Besides, the pressure on earnings would also ease if the company manages to successfully negotiate price revisions from its original equipment clientele.

Taking into account these factors, long-term investors may include the company in their core portfolio. Sundram Fasteners would rank as one of the superior picks from the auto ancillary sector.

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