Sona Koyo’s reliance on Maruti coming down 

R. Y. Narayanan Coimbatore | Updated on March 12, 2018

The country’s largest manufacturer of steering systems for passenger cars and utility vehicles, Sona Koyo Steering Systems Ltd (SKSSL), has seen the share of Maruti Suzuki in its overall business coming down in the past three years, though Maruti continues to be the largest contributor to its revenue.

The company, which is a technical and financial JV of Sona group of India and JTEKT Corporation, Japan, is also realigning its production facilities at its unit in Gurgaon in an effort to improve efficiency and plans to sell 14 acres of prime land in Gurgaon to reduce leverage.

In an investor presentation, a copy of which was provided to the stock exchanges, SKSSL said Maruti’s share in its business had come down from a high of 55.4 per cent during FY 2010 to 43.5 per cent in FY 2012. In the first six months of the current fiscal, Maruti’s share in SKSSL’s business had come down further to 41.5 per cent. Though disruptions in Maruti’s plants during the last financial year and in the first half of this year had caused a fall in its contribution, the declining trend was seen even earlier.

On the other hand, M&M has witnessed a rapid increase in Sona’s sales in percentage terms. With models such as the Bolero, Scorpio and XUV 500 registering high growth leading to higher demand for steering systems, M&M’s share in the business of SKSSL witnessed steady growth to 13.4 per cent in FY 2012 from 9.7 per cent in FY 2010 and in the first half of this year has gone up to 18.4 per cent.  

The Hyundai group, Toyota and Tata were the other major contributors to its revenue. But the share of other automobile companies (excluding the five top contributors) had jumped from 7.7 per cent in 2010 FY to 13.2 per cent last year and to 22.6 per cent in H1 of 2012-13, de-risking the company due to the expanding customer base. 

SKSSL, in its investor presentation, said as part of its backward integration efforts, it was investing in an aluminium die-casting facility (first phase) in Dharuhera and the total cost of the project was Rs 50 crore. The four machines to be installed by the end of FY2013 would have a cumulative capacity of 1,850 tonnes. Initially, the product would be used in-house and later supply would be extended to other customers also. The company described it as a high margin business, the technology support for which was provided by JTEKT.

The company was re-aligning its facilities with production at its Gurgaon factory being spread over five other locations — three of which are in Dharuhera and the others in Sanand and Chennai with a view to improve efficiency.

It had spent Rs 114 crore as capex during FY12, of which Rs 30 crore was for relocation and has planned to incur capex of Rs 30 crore each in FY13 and 14 towards the relocation project.

SKSSL said its debt/equity had come down and financial expenses as a percentage of sales had also fallen. The EBITDA margin had improved to 12.5 per cent in FY12 from 10.5 per cent in FY10. This would go up further with the commissioning of phase I of the aluminium die casting plant. The import content is also expected to come down from 28 per cent to 22 per cent with the drive towards localisation at Dharuhera plant gaining momentum. The cost of raw materials as a percentage of revenue from operations too has come down contributing to improved margins.

Referring to future growth, SKSSL listed the establishment of a new Electronic Power Assist Module plant for off-highway vehicle applications with exports to John Deere (farm equipments) and Clubcar (golf cars) in the US and pressure die casting to be among key drivers of sales growth. 

Shares of SKSSL were trading at Rs 13.10 (face value Re 1) with a trading volume of about 64,000 shares by 2.45 pm today.

Published on January 08, 2013

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