In Acceleration

Updated: Jan 28 2003, 05:30am hrs
Auto ancillaries have been on a roll in the recent past. Buoyed by excellent performance, ancillary stocks are scaling new 52-week highs. Bharat Forge, Sundaram Clayton, Kalyani Brakes, Motherson Sumi, Ucal Fuel Systems are notable among these.

Sundaram Clayton (SCL), a TVS group company, reported a hefty 22 per cent growth in operating income to Rs 77 crore for the quarter to December 2002. The company manufactures air brakes actuation systems which find application in automotive, non-automotive and industrial segments. Its competitor, Bharat forge, also reported a huge 46 per cent rise in operating income to Rs 181 crore.

Surging exports and a pick-up in domestic demand has helped improve performance of auto ancillary companies. Domestic auto sales have grown by around 20 per cent in the past few quarters. This trend is likely to continue in the future, thanks mainly to higher road penetration in the country coupled with low interest rates that encourage consumers to buy cars.

Exports, on the other hand, are also looking up with a majority of world- class auto manufacturers such as Mercedes Benz, Mitsubishi Motor Corporation, Renault, Volvo Trucks etc now outsourcing their component requirements to India. This may propel growth of auto ancillary manufacturers.

While SCLs income has shot up by 22 per cent, expenses grew at a lower rate of 21 per cent at Rs 68 crore. The situation could have been much better, had there been tight control on staff cost which increased by 47 per cent to Rs 12 crore. As a result, operating profit rose 32 per cent to Rs 13 crore. Higher other income in the form of dividend and interest has seen net profit grow by 134 per cent to Rs 12 crore.

Auto ancillary companies can look forward to palmy days ahead. Yet, rising global oil price is a concern as it increases transportation cost which may affect car sales. Auto ancillary component manufacturers may suffer from the adverse fallout.

Indo Gulf Corporation
Once again, copper exports propped up Indo Gulf Corporations topline during the quarter to December 2002. Average prices of the metal on the London Metal Exchange (LME) were around five per cent higher during the quarter. Therefore, a healthy increase in copper exports must have been instrumental in pushing up the copper divisions turnover to Rs 729.9 crore. The company has carved out a niche for itself in the export markets of South East and West Asia.

The companys overall performance largely hinges on the performance of copper business as it contributes more than 80 per cent to the total turnover. As a result, net sales were up 11.7 per cent to Rs 854.7 crore despite stagnant fertiliser turnover at Rs 124.8 crore (Rs 120.1 crore). Consumption of raw material (net of stock variations) increased by 14.6 per cent to Rs 539.6 crore. Power and fuel cost also moved up 14.1 per cent to Rs 44.6 crore in line with higher production volumes. The profitability of copper business has gone down to 18.1 per cent (20.4 per cent) despite marginally better LME prices. This may have been due to higher copper smelting cost. In contrast, fertiliser business improved its profitability at 20.4 per cent (12.3 per cent). But since the contribution of fertiliser business to PBIT is only 16 per cent, OPM as a whole dipped marginally to 21.9 per cent (22.7 per cent). Operating profit moved up by 7.7 per cent to Rs 187.3 crore. Other income almost doubled to Rs 23.5 crore. Interest outgo declined to Rs 26.9 crore (Rs 30.6 crore) owing to the debt restructuring initiatives. PBT surged 23 per cent to Rs 152.3 crore. But higher tax provisioning, due to lower tax benefits for exports and moving out of minimum alternate tax (MAT) net, restricted the bottomline growth to 19.7 per cent to Rs 105.6 crore.

The companys copper smelting capacity expansion to 150,000 TPA from 100,000 TPA should serve it well in case LME prices remain low. But the outlook for copper business appears positive.

With the recovery in copper prices on LME, price realisation may improve in the fourth quarter of the current fiscal. Fertiliser divisions prospects depend on the governments fixation of final retention prices of urea.

Prashant Kothari & Manish Joshi