Sundram Fasteners: Excellent pick!

By Devdas Mogili

Sundram Fasteners Ltd. (SFL) is a 49-year old Chennai based company established in 1962 and is the flagship of the US $6 billion TVS Group . The company manufactures automotive and engineering components at world-class facilities in India, China, United Kingdom, Malaysia and Germany. Mr. Suresh Krishna is the chairman and managing director of the company.

SFL's range consists of high-tensile fasteners, powder metal components, cold extruded parts, hot forged components, radiator caps, automotive pumps, gear shifters, gears and couplings, hubs and shafts, tappets and iron powder.

Clientele : The company has a reputed clientele, which inter alia include companies like Fiat, Ford, General Motors, Honeywell, Hyundai, Ingersoll Rand, Jaguar Land Rover, Komatsu, Lucas TVS, Lombardini, Mitsubishi, Siemens, Ashok Leyland, Tata Motors, Bajaj Auto, BEML, Caterpillar, Daimler, Denso, Maruti Suzuki, TVS Motors, Toyota Kirloskar, Volkswagen and Volvo to name a few.

SFL and its subsidiaries have 11 manufacturing facilities in India and 4 abroad. In 1994, the company entered into power generation by installing a 2 MW Wind Farm at Muppandal in Tamil Nadu. In 1997, it signed an agreement with General Motors, USA, for supplying its entire requirement of radiator caps.

Subsidiaries : SFL has a number of subsidiaries that includes Upaasana Engineering Ltd., Sundram Bleistahl Ltd. Its German operations are carried out through 100% subsidiaries viz. Peiner Umformtechnik GmbH (Peiner), TVS Peiner Services GmbH (TVSP) and PUT Grundstucks GmbH (PUTG). Another 100% subsidiary, Cramlington Precision Forge Ltd. (CPFL) UK, is engaged in the manufacture of precision forged components for heavy vehicles for on-highway and off highway applications.

In 1998-99, SFL entered into a technical collaboration agreement with Dura Automotive Group, USA, for the manufacture of gear shifters and parking brake assemblies for automobiles. It commenced the manufacturing of Gear Shifters at its unit in Padi, Tamil Nadu.

In 2003-04, it set up a factory in Haiyan Economic Development Zone (HEDZ), Haiyan County, Jiaxin city, Zhejiang Province in South China to manufacture and sell High Tensile Fasteners to the Chinese automobile industry. The project was implemented through a 100% subsidiary company named Sundram Fasteners (Zhejiang) Ltd. This is the first project set up by an Indian company.

In September 2007, the company's project in the Special Economic Zone, Mahindra World City near Chennai for the manufacture of hubs and shafts for automotive gear boxes commenced commercial production. The company also acquired 60 acres of dry land at Thandalachery near Chennai to set up a new project for high pressure moulding and machining of castings.

During 2008-09, the company acquired 52.94% equity share capital of Sundram Non-Conventional Energy Systems Ltd., a subsidiary of Sundram Fasteners Investments Ltd.

Expansion : SFL is in the process of setting up facilities at Mittamandagapet in Tamil Nadu to manufacture fasteners for use in Wind Energy Generators with an initial investment of Rs.30 crore. Currently, a substantial portion of the demand of Indian Wind-turbine manufacturers is met through imports. Also, the Global demand for fasteners for Wind Energy industry will be quite high considering the emphasis placed on generation of clean power. Work on the company's project for the manufacture of sprockets at its factory at SEZ, Maraimalainagar at an initial investment of Rs.25 crore is also in progress. It also plans to expand capacities for the manufacture of sintered metal products, hubs shafts and fasteners and proposes to add secondary capacities to develop new products. Exports : Exports from all major units recorded sizable growth enabling the company to post record 45% higher expect sales of Rs.480 crore as against Rs.332 crore in the previous year. The company's quest for new products and new customers will lead to higher exports in the near future. R&D : SFL accords high priority to R&D initiatives. Its R&D facilities at Padi, Chennai and at Hosur have been granted recognition by the Department of Scientific and Industrial Research (DSIR), making it eligible for weighted deduction under Section 35 (2AB) of the Income Tax Act. Application for grant of recognition for its R&D facilities at Velappanchavadi, Chennai, is under the consideration of DSIR. The company continues to make additional investments in R&D for developing new products, production and cost optimization. Performance : For FY11, it recorded total income of Rs.1808.39 crore as against Rs.1336.60 crore in FY10. Export sale was at Rs.480.30 crore as against Rs.332.15 crore in the previous year. The Profit after tax was higher at Rs.105.43 crore as against Rs.75.01 crore in the previous year and it registered an EPS of Rs.5.02.

Latest Results : Sales rose 28.50% to Rs 521.44 crore in Q1FY12 against Rs 405.78 crore during Q1FY11. Net Profit shot up 54.90% to Rs.34.93 crore in Q1FY12 as against Rs.22.55 crore in Q1FY11. The company recorded an EPS of Rs.1.66 in Q1FY12 against Rs.1.07 in Q1FY11.

Financials : The company has an equity base of Rs.21.01 crore with a book value of Rs.26.41. It has a debt:equity ratio of 1.27 with RoCE of 15.03% and RoNW of 20.32%.

Share Profile : The company's share with a face value of Re.1 is listed on the BSE & NSE under the A group. Its share price touched a 52-week high of Rs.76.50 and a low of Rs.45.10. At its current market price of Rs.60.10, it has a market capitalization of Rs.1262.87 crore.

Dividends: The company has been paying dividends as shown here: FY11 - 125%, FY10 - 90%, FY09 - 50%, FY08 - 90%, FY07 - 130%, FY06 - 170%, FY05 - 170%, FY04 - 140%, FY03 - 120%, FY02 - 100%.

Shareholding Pattern : The promoter stake is 49.53% and the balance of 51.47% is with non corporate promoters, institutions, mutual funds and the Indian Public. Among mutual funds, funds like Sundaram SMILE Fund, BNP Paribas Tax Advantage Fund, Tata Mid Cap & Growth Fund, L&T Small Cap Fund, ING Optimix, HDFC Balanced Fund, Reliance Small Cap Fund, Taurus Discovery Fund, UTI Mahila Unit Plan, Sahara REAL Fund, have added SFL share to their various schemes during the last 3 months.

Conclusion : SFL, a TVS Group company, is one of the leading auto component manufacturers in India. Over the years, it has acquired cutting-edge technological competence in forging, metal forming, close-tolerance machining, heat treatment, surface finishing and assembly. Further, the company has an unique industrial relations record with not a single working day lost since inception.

At its current market price of Rs.60, the SFL share price is discounts less than 12 times its FY11 EPS of Rs.5.02. Considering the sparkling performance, excellent pedigree and bright prospects, a company of the stature of Sundram Fastners deserves a better price earning multiple. Assuming a P/E multiple of 20, its share price has the potential to touch the Rs.100 mark in a buoyant market. The share is an excellent pick for spectacular gains in the medium-to-long-term.

  Financial Highlights: (Rs. in lakh)