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PENNY WISE

The growing car market and launch of new car models will ensure rapid growth for Sona Koyo.

On the back of orders from Indian auto companies and higher exports, steering solutions company, Sona Koyo Steering Systems is expected to post a 20 per cent revenue growth for FY08 and FY09.

The company is a JV between JTEKT Corporation of Japan, which holds 20.1 per cent, and Indian promoter who holds 31.46 per cent. Maruti Suzuki too, which accounts for 60 per cent of Sona Koyo's sales, holds 7.12 per cent.

Sona Koyo makes steering systems in which it is the Indian market leader with 45 per cent share and, driveline products. Steering systems accounted for 85 per cent of its Rs 580 crore net sales in FY07.

New products : Sona Koyo is moving up the value ladder with products such as the column type electronic power steering (CEPS). A high import content in CEPS dented operating profit margins to 10.3 per cent in FY07 from 11 per cent in FY06.

The company plans to source parts for CEPS locally and gradually bring down the import content from 80 per cent to 20 per cent by 2009-10, which should help improve operating margins to 14 per cent.

With customers expanding their capacities, volumes should continue to rise. The company is spending Rs 400 crore to set up a factory each in Uttaranchal and Singur, in West Bengal, to double its capacity to 3.8 million units per year in the next two years.

In fact, the company has already received orders worth Rs 230 crore in the second quarter of FY08 from Fiat, Toyota, Tata Motors and Hyundai, to be executed over the next two years.

Exports : At Rs 55 crore, exports contribute just 8 per cent of sales and grew marginally in FY07 as its prospective customers delayed their product launches.

But, despite that, the company plans to increase its share to 40 per cent by 2010; for 2007-08, it has a set a target of Rs 90 crore. Till recently, a majority of Sona Koyo's exports were to North America, but after its alliance with Fuji Autotech, it will help expand into Europe and Latin American.

Valuations: The company has posted good numbers for the September quarter. Net sales and operating profit were up 19 per cent y-o-y to Rs 160 crore and Rs 20 crore, respectively.

For the full year, sales are expected to grow Rs 725 crore, 25 per cent higher than FY07. With localisation of CEPS, the company is expected to improve its operating margins.

Earnings per share is expected to move up by 30 per cent from an estimated Rs 3.8 for FY08 to Rs 4.8 in FY09. On a fully diluted basis, the stock at Rs 64.45 trades at a reasonable 13.4 times its estimated FY09 earnings and, can deliver in excess of 25 per cent over one year.