Sundram Fasteners : Globalisation is the key

Sundram Fasteners Ltd (SFL), a professionally managed company has for the fourth consecutive year won the "GM supplier of the Year" award in FY2000. The prospects for the automobile ancillary industry are dull in the current year as demand has slackened in almost all automobile segments. Hence though the short term prospects for the company do not seem to be attractive, SFL has many positives to come out a winner in the long term. SFL, of the TVS group, is the largest manufacturer and exporter of high-tensile fasteners (HTF) in the country. Its product range includes HTF, automotive components, cold formed/extruded products, powder metal parts and radiator caps. It is the sole supplier of radiator caps, as well as powder metal parts to GM, USA.

SFL's major domestic customers are Telco, Ashok Leyland, Maruti and Mahindra & Mahindra. SFL has the ability to produce a wide range of fasteners. As the domestic automobile segment has had a fluctuating performance in the past few years, the company is concentrating on exports to increase its revenues. On the export front the company has been quite aggressive and has focussed on tapping new markets and customers. In FY2000, due to the above efforts the company was able to increase its export sales by 13% YoY despite adverse market conditions. The company continues to export fasteners to Daimler Benz AG, Germany and Cummins Engine Company Inc, USA.

Besides SFL to further increase its presence and consolidate its position in the auto ancillary segment, has acquired a 51.09% stake in Autolec Industries Ltd, a leading manufacturer of water and fuel pumps. As the products of Autolec are of high quality and there are business synergies, this acquisition will be beneficial to both companies. Autolec has also been focussing on exports and during FY2000 the company's exports grew by a robust 37% YoY and contributed to 9% of the company's total revenues. As the company is negotiating with two well known companies in Europe and one in America to supply pumps on a regular basis, the prospects for exports in the current year too look bright.

With globalisation setting across the automobile segment and consolidation being the key in the auto ancillary segment, the supplier base is likely to be divided into three categories. Category one vendors like SFL are going to being manufacturing components themselves as well as would outsource from the category two and category three vendors. They would be responsible for the quality and timeliness of delivery of the products to the companies directly. This will result in higher margins for the category one companies as they would be the direct interface with the automobile manufacturers.

SFL due to its high quality products, professional management, focus on exports and globalisation is likely to emerge a key winner in future. As competition is intense and global consolidation is setting in the automobile sector, companies with an export focus will definitely benefit.

Though the prospects in the current year are not exciting, in the long term this company is worth looking at. SFL on the current price of Rs 401, is trading at 9.4xFY2000 EPS of Rs 42.8. Its is trading near to its 52 week low of Rs 372.