The second quarter performance from Sundaram Clayton continues to fuel market expectations. The automobile ancillaries sector was expected to do very well on the back of strong growth in automobile sales, especially in the heavy commerical vehicles (CV) sector. The stock market had bid up these stocks and watched with bated breath if these companies would be able to deliver higher earnings against their improved valuations. Sundaram Clayton has done it in the second quarter as well as in the first quarter. In the first quarter, the company reported a steep earnings growth. Revenues were higher by 55 per cent but an improvement in margins pushed net earnings growth by 186 per cent. The growth rate has slowed down a little in the second quarter, but there is an improvement between the first and second quarters.The Q2 topline growth remained more or less the same, but bottomline growth was 33 per cent y-o-y. Despite the decline in growth rate, there was a 52 per cent growth in earnings from Q1 to Q2 of the current year. The stock which languished for all of 1998-99 has returned over 250 per cent in the first half of the current year.
The company supplies castings to CV manufacturers and the general expectation is that the earnings growth rates should continue into the rest of the year. The first half looks exceptionally good, given the extreme negative situation that the CV industry went through in the first half last year. The results shown by SCL now also reflects very favourably on the rest of the auto ancillary segment as well.
Gabriel India
The trend of a continuing recovery among the automobile ancillary manufacturers could clearly be seen in the case of Gabriel India (GIL), the other company besides Sundaram Clayton, to announce its second quarter results. In the second quarter, GIL reported a growth of 14 per cent in its topline. Not unlike Sundaram Clayton, GIL too reported a lower y-o-y rate of growth in the second quarter, as compared to the first quarter. In Q1, the company had reported a topline growth of over 20 per cent. The profit growth cannot be strictly compared since the corresponding Q1 and Q2 in 1997-98 had resulted in a loss. But once again, the crucial point emerged that the profit in the second quarter was higher than in the first. There was a 10 per cent increase in net profit from Q1 to Q2, along with an improvement in margins.
The company has a strong presence in shock absorbers with a 36 per cent market share. Last year, its performance was salvaged to some extent by the increase in offtake from the two and three wheeler segments. The downturn in the commercial vehicles sector was the cause of its losses last year, since it hampered offtake in both the shock absorbers division as well as the engine bearings division. The engine bearings business was hit particularly hard since it catered largely to the CV sector, last year revenues fell by 30 per cent. The strong recovery in CV production is good news to Gabriel India. The stock has reacted somewhat following the strong first quarter rally, but is still 180 per cent higher than its 1998-99 low.
Aaron Chaze
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.