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From THE HINDU group of publications
Sunday, November 04, 2001












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Sundram Fasteners: Long-term choice

B. Krishnakumar

THE overall stock market sentiment has improved in the recent weeks.

There is also a pick-up in the automobile sector with an increase in commercial vehicles and two-wheeler production. If the recent improvement in the auto sector persists, it would have a positive impact on the prospects of auto ancillary companies.

The strong fundamentals, prominent presence in the domestic market and growing export earnings places Sundram Fasteners in a position to exploit the growth in demand stemming from an improvement in the automobile industry.

Considering that the sharp decline in share price from the historic high of around Rs 800 recorded in early 2000, long-term investors could contemplate equity exposure in Sundram Fasteners at the current level of Rs 172.

Background: Sundram Fasteners is a major producer of high-tensile fasteners. It also manufactures powder metal parts, automotive components, precision-formed gears and radiator caps. While high-tensile fasteners continue to contribute a major chunk to the revenue, the contribution of powder metal parts and precision-formed gears have increased in the recent years.

The company caters to almost all segments of the automobile industry. This has lent much-needed stability to the earnings stream. As a result, Sundram Fasteners has managed to successfully weather the recent downturn in the commercial vehicles sector.


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Despite the sharp decline in commercial vehicle and passenger car segment in the previous fiscal, the company's turnover declined by little over one per cent to Rs 424.21 crore (Rs.431.9 crore) in the previous fiscal.

The strong presence in the export market (18 per cent contribution) and the growing contribution from precision-formed gears (used in two-wheelers) have helped the company mitigate the impact of slowdown in commercial vehicles and tractor segment.

However, the downturn in the automobile sector affected realisations in the high-tensile fasteners segment. The rising input costs coupled with pressure on product realisation has affected the profitability. This has led to a 32 per cent drop in post-tax earnings to Rs 28.77 crore for the year ended March 2001.

Prospects: In the last few months, the commercial vehicles output has seen a recovery. Both the HCV and LCV productions have improved in the recent months while the two-wheeler output continues to remain strong. The positive impact of this improvement is already reflected in the company's performance.

For the second quarter of the current fiscal, turnover increased to Rs 102.8 crore from Rs 95.04 crore recorded in the first quarter. The net profit declined marginally to Rs 7.37 crore from Rs 8.41 crore. The rise in employee cost on account of compensation paid under the early retirement scheme has pulled down the net profit.

The company's performance would improve if the recent improvement in the automobile sector persists. In any case, the company has the necessary technical and financial strength to withstand a lean business phase. Long-term investors willing to wait for a stretch of time could take equity exposure in the company.


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