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MICO: An overview

Dec 19, 2003

Motor Industries Company Limited (MICO), a member of the Bosch Group (Germany), is the country's leading manufacturer of automotive Spark Plugs and Diesel Fuel Injection Equipment. In addition, MICO also manufactures Industrial Equipment, Auto Electricals and Hydraulic Gear Pumps for tractor applications. It also markets Blaupunkt Car Multimedia Systems and Bosch security systems. The company contributes 0.8% to the parent's global revenues. MICO derives 45% of its revenues supplying to the OEM segment, which includes major players such as Tata Motors, Ashok Leyland, Mahindra and Mahindra, Eicher and Escorts. Let us have a look at the company's performance in the recent past and also its future prospects.

2002 (the company is December ending) was a decent year for the company, as topline grew by 7% and the bottomline registered a rise of 9%. Despite stagnant automotive sales in the European as well as American markets, the company performed admirably on the exports front and registered an increase of 29% YoY. The contribution of exports to the company's topline also increased from 13% in 2001 to 16% in 2002.

Moreover, if the performance in the first three quarters of the current year is any indication, the company is expected to perform even better in 2003. Already, for the nine months ended September 2003, the company has posted a robust 20% rise in its topline and a substantial 94% bottomline growth mainly on account of robust sales in domestic and exports markets, as well as cost reduction measures undertaken by the company.

  9mFY02 9mFY03 %Change
Net Sales 11,528 13,891 20.5%
Operating profit 1,669 3,188 91.0%
Net proft 943 1,832 94.2%
OPM 14.5% 22.9%  
NPM 8.2% 13.2%  
EPS* 365 715  
P/E Ratio   21  

As far as the future prospects of the company are concerned, we believe that the company is riding on a dual growth wave viz. both the domestic and the international markets. The company expects to grow by 20% in the domestic markets as the demand for both commercial vehicles and passenger cars is expected to remain strong owing to the ever-improving road infrastructure and low cost financing options. Moreover, the tractor industry is also showing signs of revival. Further, the government's enforcement of Euro II norms in non-metros and Euro III norms in metros by 2005 is also likely to give a boost to MICO's growth prospects.

On the exports front, with the pressure mounting on global automakers to cut costs, the company with its strong parent, is increasingly being looked as an outsourcing base. The exports of the company are expected to grow by 18% this year and with the export market expected to grow by 30%-40% in the future, we can expect exports to make significant contribution to the company's topline going forward.

Thus, on account of growth in both domestic as well as international markets, the company expects to finish 2003 with a 16% growth in topline with revenues of Rs 18 bn (Rs 15.5 bn in 2002).

In order to cater to the growing demand in both the domestic as well as international markets, the company has embarked upon a capacity expansion program at its facilities in Bangalore, Nasik and Jaipur. In fact, the capacity at its Jaipur plant, which rolls out 100,000 distributor pumps a year, is likely to be doubled to meet the increase in demand. The company's parent, Bosch GmbH, is also planning a multi-million euro investment in MICO for the production of electric systems that offer better fuel efficiency.

However, amidst all this euphoria there are a couple of caveats. The company's fortunes are dependent upon the automotive industry, which is cyclical in nature. Also, increased competition from local players and escalating prices of steel may impact the company's margins going forward.

The stock is currently trading at Rs 14,869, implying a P/E of 21x its annualised 9mFY04 results. Considering the company's dependence on the automotive markets, the valuation appears to be on the higher side. Also, an appreciating Euro is putting pressure on raw material import costs. However, it should be borne in mind that the industry is riding on a dual growth wave and as a result the company might be able to meet the expectations.

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