Sona Koyo: Steering ahead

Sales to Maruti drove the firm's performance in Q2

Sona Koyo Steering System reported an improved performance in the September 2007 quarter, on the back of sales to Maruti.

It sold 85,000 units of its electronic power steering systems to the auto major in Q2 FY08, for use in models such as Alto, Wagon R and Zen Estilo. The entry of Mahindra & Mahindra into the passenger car segment has also contributed to the company's sales growth, according to analysts.

The company's operating profit grew 33.1 per cent y-o-y to Rs 17.7 crore in the last quarter, while its net sales improved 18.8 per cent to Rs 164.6 crore. A tight check on the raw material costs contributed towards improved operating margins.

The adjusted raw material costs as a percentage of net sales declined 90 basis points y-o-y to 72.2 per cent in Q2 FY08. The operating profit margin also improved 115 basis points y-o-y to 10.75 per cent. In the June 2007 quarter too, the operating profit margin had expanded 60 basis points y-o-y to 10.5 per cent.

Sona Koyo's domestic revenues in the September 2007 quarter expanded 18.8 per cent y-o-y to Rs 149.8 crore, while the export revenues improved 19.5 per cent to Rs 14.7 crore.

However, the company is understood to have lowered its export target for FY08 to Rs 60 crore from its earlier target of Rs 80 crore, as it seeks to go slow on US exports following the weakening dollar.

Sona Koyo had earlier entered into a JV for the manufacture of column-type electrical power steering and the operations are likely to commence by FY10.

At Rs 60, the stock trades at about 16 times estimated FY08 earnings and 13 times FY09 earnings.