We recommend ?BUY? on SUNDRAM FASTENERS LTD for a target of INR 654 – valuing the company at P/E 30x of FY19E Earning.
Investment Rationale:
- Sundram Fasteners is a flagship company of TVS Group.
- Manufacturer of automotive and engineering components
- First Indian company to be ISO 9000 certified. All operations are ISO 9000, IS 14001 & TS 16949 certified.
- Sundram Fasteners has a diversified product line, world-class facilities in 4 countries and motivated team of talented people
- Sundram Fasteners has become a supplier of choice to leading customers in the automotive and industrial segments worldwide.
- At Sundram Fasteners, growth is a natural outcome of total adherence to three core operating principles: customer orientation, total quality and ethical business practices. Focus on increasing presence in higher margin products.
- Sundram has incurred Rs 800 crore on capital expenditure and now has an extensive tool library helping develop customised solutions for customers.
- The company has been consistently increasing export revenues.
Valuations And View:
At Sundram Fasteners, growth is a natural outcome of total adherence to three core operating principles: customer orientation, total quality and ethical business practices. Focus on increasing presence in higher margin products. Sundram Fasteners Limited has grown into a global leader, manufacturing critical, high precision components for the automotive, infrastructure, windmill and aviation sectors. We value the business at 30x FY19E EPS and recommend a BUY rating on the stock with a target price of INR 654 per share.
Risk & Concerns
The Company faces diverse risks in terms of slowdown in economy, input prices, reputation, interest rates, foreign exchange, information systems, etc. The auto component industry has been operating in a challenging environment due to uncertainties and demand fluctuations in the economy in general and in particular automotive industry. The Company manages its risks in the following manner:-
- Exercising prudence while incurring capital expenditure or outlays on new projects.
- Entering into long term contracts with customers to underwrite the capacities created.
- Determination of product prices after engineering studies.
- Adoption of a diversified business model in terms of products, market segments, geography and customers to ensure that Company is able to withstand any instability in the entire business eco-system.
- Analysing credit risks through market feedbacks.
- Management of interest rate risks through a combination of loan products, tenor of financing and currency denomination.
- Monitoring, reviewing and hedging foreign exchange risks in accordance with the risk management policy.
Company Background
Started in 1966, Sundram Fasteners Limited has grown into a global leader, manufacturing critical, high precision components for the automotive, infrastructure, windmill and aviation sectors. Our varied range of products encompasses fasteners, powertrain components, sintered metal parts, iron powder, cold extruded parts, radiator caps and wind energy components. An unwavering focus on delivering quality has won Sundram Fasteners Limited the trust of both OEM and aftermarket customers in highly competitive markets like India, China, Germany, USA, UK, Italy, France and Brazil.
Sundram Fasteners Limited is part of the TVS Group of companies. Founded in 1911 by T.V. Sundaram Iyengar, TVS has grown rapidly, expanding its portfolio to become India?s largest automotive component manufacturer. The group has, over the years, diversified into many businesses, with total sales exceeding USD 7 billion.
Products:
- High Tensile Fasteners
- Cold Extruded Parts
- Hot Forged Parts
- Powertrain Components
- Pumps and Assemblies
- Radiator Caps
- Power Metallurgy
Industry Overview
The Indian auto-components industry has experienced healthy growth over the last few years. Some of the factors attributable to this include: a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. The auto-component industry of India has expanded by 14.3 per cent because of strong growth in the after-market sales to reach at a level of Rs 2.92 lakh crore (US$ 44.90 billion) in FY 2016-17. The auto-components industry accounts for almost seven per cent of India?s GDP and employs as many as 25 million people, both directly and indirectly. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favourable destination for investment.
The Indian automotive aftermarket is expected to grow at a CAGR of 10.5 per cent and reach Rs 75,705 crore (US$ 13 billion) by the year 2019-20, according to the Automotive Component Manufacturers Association of India (ACMA). These estimates are in sync with the targets of the Automotive Mission Plan (AMP) 2016-26.
