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Sundram Fasteners: Exports stem slide

Aug 6, 2001

Sundram Fasteners Ltd (SFL), a leading player in high tensile fastener industry has reported a 12% YoY drop in its net profit to Rs 84 m in 1QFY02. It is the sole supplier of radiator caps, as well as powder metal parts to General Motors, USA. The company's overall sales fell by 3.3% to Rs 1,073 m as a result of a 5.9% drop in domestic sales due to continuing slowdown in the automobile sector.

(Rs m)1QFY011QFY02Change
Sales 1,110 1,073 -3.3%
Other Income 12 4 -62.4%
Expenditure 923 890 -3.6%
Operating Profit (EBDIT) 187 184 -1.7%
Operating Profit Margin (%)16.8%17.1% 
Interest 41 37 -10.2%
Depreciation 30 32 7.7%
Profit before Tax 128 119 -6.7%
Extraordinary items - 4  
Tax 32 32  
Profit after Tax/(Loss) 96 84 -12.1%
Net profit margin (%)8.6%7.8% 
No. of Shares (eoy) 10.22 10.22  
Diluted Earnings per share* 37.5 32.9  
* annualised   

On the exports front though, the company has done well. Its exports in 1QFY02 grew by 10% YoY. Exports accounted for 23% of sales in 1QFY02, an improvement from 19.6% of sales that it contributed in 1QFY01. This is commendable as the global market conditions for the automobile sector too have been difficult.

The company's operating profits during this period fell by 1.7% YoY due to higher raw material and employee costs as well as a pressure on realisations from customers due to declining volumes across the automobile segment. Staff expenses grew by 4.3% YoY in 1QFY02 and material costs went up by 1.4% YoY during this period. However, as the company was able to curtail its other expenditure which fell by 3.6% YoY and its stores and tools costs which fell by 8% YoY it has managed to report an improvement in its operating margins from 16.8% in 1QFY01 to 17.1% in 1QFY02. It seems that the higher export growth too has added to the improvement in its margins.

The extraordinary item in 1QFY02 of Rs 3.6 m is in relation to the company's early retirement scheme which the company initiated in the previous year.

The business prospects for Sundram Fasteners in the short term look weak due to dull domestic conditions. However, as the monsoons till date have been normal, the demand prospects for the automobile sector are likely to pick up in 2HFY02. This should lead to better demand for SFL too. SFL's major domestic clients are Telco, Ashok Leyland, Maruti and Mahindra & Mahindra. On the export front the company supplies fasteners to Daimler Benz AG, Germany and Cummins Engine Company, USA.

As SFL is amongst category one vendors due to its high product quality and professional management, it will be a beneficiary of the consolidation that is likely to take place in the domestic ancillary segment. As the automobile sector is at the bottom of its trough the company is likely benefit from the impending recovery in the longer term.

On the current price of Rs 165, it is trading at 5.9x FY01 EPS of Rs 28.17. The company's 52 week high is Rs 485 and its 52 week low is Rs 145. Based on the dividend per share of Rs 7 for FY01, it offers a dividend yield of 4.2%.

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