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After almost trebling in value in 2014, market volatility has seen the Sundram Fasteners stock drop 18 per cent so far this year.
Investors can use this opportunity to buy the shares of the auto-parts maker.
With sales of trucks, buses and other passenger vehicles in a cyclical upturn, the company’s market leadership position in fasteners (40-50 per cent market share) holds good prospects.
Manufacture of other value-added components and a focus on exports also lend diversity to Sundram Fasteners’ revenue base and aid margin expansion.
Valuations, too, are reasonable. At ₹156, the stock discounts its estimated 2015-16 earnings by 15.4 times.
Riding on revivalAbout three-fourths of Sundram Fasteners’ domestic revenues come from supplies to the truck, bus and passenger vehicle segments.
After the downturn that affected the entire auto industry till 2013-14, domestic truck and bus sales showed a convincing revival last fiscal year, growing by 16 per cent.
In the months to come, greater demand for freight carriage can aid volume growth in commercial vehicle sales. Besides, the Society of Indian Automobile Manufacturers (SIAM) also expects car and utility vehicle sales to grow 6-8 per cent this fiscal year, up from about 4 per cent last year.
Value additionsOver the years, the company has diversified its offerings by adding several products such as powder metal parts, pumps and assemblies, engine components and radiator caps.
The company is also exporting these components to passenger vehicle markers in Europe and the US.
Exports currently contribute 30 per cent to Sundram Fasteners’ revenues.
These additions improve the content supplied per vehicle, giving it greater pricing power when negotiating with vehicle manufacturers.
Besides, the value-added nature of components such as hubs and shafts, and pump assemblies, bring higher margins as well.
FinancialsThe company’s net sales for fiscal year 2014-15 grew by 17.6 per cent over the previous year to ₹2,330 crore. Adjusted profits increased 13.1 per cent to ₹145.3 crore. Operating margins came in at 14.5 per cent, around the same levels as the previous fiscal year.
Given the upturn in auto sales, the company seems well-positioned to record double-digit earnings growth in the next one to two years.
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