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Sundram Fasteners – Multibagger Stock For the Month of April 2018

Price – Rs. 597.50

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About the Company

Sundram Fasteners Limited (“Sundram Fasteners” or the “Company”) is a TVS group holding company engaged in the business of manufacturing of high tensile fasteners and automobile parts and accessories. The Company manufactures cold extruded parts, hot forged fasteners, power train components, pumps and assemblies and radiator parts.

The Company’s products find applications in automobile, wind energy, aviation, aerospace, infrastructure and defense industry.

Sundram Fasteners has a global manufacturing presence that spans India, China, United Kingdom, Malaysia and Germany. Its main customers are Maruti Suzuki, Toyota, Volkswagen, M&M, Ashok Leyland, Tata Motors, Bajaj Auto, TVS, JCB, GE, Dana, Honeywell, Ingersoll Rand, Bosch, Caterpillar, Jaguar and John Deere to name a few.

Financial Position

Particulars (In Rs. Cr.)

2013

2014

2015

2016

2017

Total Income from Operations

2,650.99

2,736.20

3,156.14

3,261.01

3,529.05

Expenses

2,384.88

2,446.56

2,780.25

2,875.71

2,932.84

EBITDA

266.11

289.64

375.89

385.30

596.21

Depreciation

94.19

102.14

115.75

117.18

104.49

Finance Costs

89.78

67.60

94.47

71.72

46.52

Other income

41.11

48.79

16.66

60.92

15.69

Exceptional items

14.73

0.00

0.14

(117.60)

(2.37)

PBT

137.98

168.69

182.47

139.72

458.52

Tax

44.17

47.77

50.36

17.70

120.34

Extraordinary Items

(0.08)

(0.09)

(0.09)

(0.08)

PAT (before Minority Interest and share of Associates)

93.89

120.83

132.02

121.94

338.18

Profit/ (loss) attributable to Minority Interest

(0.44)

0.00

(0.70)

(1.04)

0.00

Consolidated Profit for the year

93.45

120.83

131.32

122.98

338.18

EPS

4.18

5.54

6.00

5.95

16.10

P/E

9.69

11.32

28.92

28.71

24.28

Profitability Ratio

Particulars

2013

2014

2015

2016

2017

EBITDA Margin (%)

10.04%

10.59%

11.91%

11.82%

16.89%

Net Profit Margin (%)

3.53%

4.42%

4.16%

3.77%

9.58%

Balance Sheet Figures

Particulars (In Rs. Cr.)

2013

2014

2015

2016

2017

Share Capital

21.01

21.01

21.01

21.01

21.01

Reserves & Surplus

684.99

780.38

857.76

908.97

1,215.12

Net worth

706.00

801.39

878.77

929.98

1,236.13

Non-Controlling Interest

4.15

3.88

10.45

9.47

5.63

Long Term Borrowings

311.65

246.56

203.00

181.82

149.77

Current liabilities

947.66

1011.03

1,152.97

992.86

1,048.20

Other long term liabilities and provisions

3.79

4.08

5.82

6.33

15.56

Deferred tax liabilities

96.20

96.66

90.11

92.25

72.40

Total Liabilities

2,069.45

2163.60

2,341.12

2,212.71

2,527.68

Particulars (In Rs. Cr.)

2013

2014

2015

2016

2017

Fixed Assets

941.12

1,047.54

1,040.57

992.70

1,088.07

Noncurrent Investments

8.91

10.02

3.37

8.92

38.46

Current assets

1,076.46

1,057.66

1,227.74

1106.12

1,270.10

Long term advances and other noncurrent assets

42.96

48.38

69.44

104.97

128.84

Goodwill

2.21

Total assets

2,069.45

2,163.60

2,341.12

2,212.71

2,527.68

Efficiency Ratio

Particulars

2013

2014

2015

2016

2017

Return on Capital Employed

26.04%

27.54%

34.42%

34.36%

42.85%

Return on Equity

13.30%

15.08%

15.02%

13.11%

27.36%

WHAT’S DRIVING THE STOCK?

Uptrend in the Automobile Industry

In the April-February period — the first 11months of FY 2018 — sales of commercial vehicles rose 19.3%, while those of two-wheelers gained 14.47%. Passenger vehicles sales also increased at a healthy rate of 8.04%. Within the Passenger Vehicles, Passenger Cars, Utility Vehicle and Vans grew by 3.62%, 21.34% and 4.25% respectively.

Category

Feb 2017

Feb 2018

% Change

Passenger Vehicle

2,55,470

2,75,329

7.77%

Commercial Vehicle

66,937

87,777

31.13%

Three-Wheelers

35,356

62,463

76.67%

Two-Wheelers

1,362,043

1,685,814

23.77%

Total

1,719,806

2,111,383

22.77%

The performance of SFL is largely dependent on the growth of commercial vehicle segment which accounts for nearly 47% of the SFL’s revenue.

Diversified Product Portfolio

[1] High Tensile Fasteners

The Company manufactures a range of high tensile fasteners for sectors like Automotive, Wind Energy, Aviation, Aerospace, Farm Equipment, Infra and Defense.

  • Wind Energy Fasteners
  • Automotive Fasteners
    • Chassis Fasteners
    • Engine Fasteners
    • Aerospace and Aviation Fasteners

[2] Cold Extruded Parts

The Company manufactures cold extruded and precision forged parts used in Two-wheeler, front wheel drive vehicles and internal combustion engines. Its Product range includes:

  • Gear Blanks
  • Transmission Shafts
  • Cams
  • Starter Sleeves and Pinions
  • Fan Hubs

[3] Hot Forged Parts

The Company manufactures a range of key parts for the automotive sector that includes:

  • Bevel Gear and Pinion Family
  • Hub and Gen 3 Bearing Hub Rings
  • RWD Clutch Hub
  • Crankshaft Sprocket
  • Stainless Steel Turbocharger Parts
  • Connecting Rods

[4] Powertrain Components

The Company manufactures and supply powertrain components to leading automobile companies around the world. Its product includes:

  • Turbine Shafts
  • Output Shafts
  • Clutch Hub
  • Sungear Shafts
  • SlipYoke
  • Crankshaft Sprocket

[5] Pumps & Assemblies

Its product includes:

  • Water Pumps
  • Oil Pumps
  • Mechanical Fuel Feed Pumps
  • Manual and Auto Belt Tensioners
  • Rocket Assemblies
  • Suspension and Precision Parts
  • Fan Support
  • Camshafts

[6] Radiator Cap

Metal Caps

  • Regular OEM Style Caps
  • Mini and Macro Style Caps
  • Large Diameter Caps
  • Safe T vent – TM Lever Style Cap

Nylon Caps

  • Sombrero Ratcheting Caps
  • Dual O-ring Caps
  • Dual O-ring Mini Caps

[7] Powder Metallurgy

The Company is one of the leading manufacturers of iron powder and powder metallurgy parts in India.

Product range includes:

  • Rotors and Gears
  • Synchroniser Hubs
  • Shock Absorber Components
  • Bushes
  • Structural Parts

Monopoly Position in Fastener Business

SFL enjoys a 70% market share in the fastener business and to maintain its position, the Company is further expanding its capacities to manufacture sintered metal products, hubs and shafts and fasteners. The Company also plans to develop new products for its customers and expand its capacity wherever necessary to meet requirements of the customers.

In FY 2017, SFL has incurred Rs.200.44 Cr. towards capital expenditure on existing and new projects. In the next 2 years, the Company is committed to have a total capital expenditure of around Rs 250 Cr.

Introduction of New Products

Sundram Fasteners has introduced various new products such as engine components, pump assemblies, powder metal parts, shafts and other components which has resulted in product diversification and has reduced dependence on fasteners.

Consequently, share of fasteners in Sundram Fasteners’s revenue dipped from 43% to sub-40% levels. The Company’s efforts to tap the emerging areas like electric vehicles and an encouraging outlook for the PV and CV industry over the next two years are expected to boost SFL’s revenue.

Growing Exports Revenue

During the last five years, the Company’s export revenue has increased by 54% from Rs. 678.25 Cr. in FY 2013 to Rs. 1,044.14 Cr. In FY 2017. In FY 2017, the export revenue has increased by 14.97% to Rs. 1,044.11 Cr. From Rs. 908.12 Cr. For nine months ended 31st December, 2017, the Company’s export revenue was up 9.9% to Rs. 842.56 Cr.

The Company’s continued investments for manufacturing of new products are expected to result in further improvement in near future.

WHAT’S DRAGGING THE STOCK

Trading  at High Valuation

At the current price of Rs. 611(closing price for – 13 March 2018), SFL’s trailing 12 month PE comes to 35.69 which is a 73% premium to its 5 year average PE Multiple of 20.58.

The fair value of this stock, based on its 5 year historic PE multiple should be Rs. 352.33, while you will have to pay Rs. 611 for each share. Of course this may be over simplistic and does not factor in the future growth plans of the Company.

At these prices and based purely on a PE analysis, SFL is OVERBOUGHT. The stock has run up substantially over the last 52 week period. The stock price has appreciated 67% to Rs. 611 from Rs. 366.70.

Intense Competition

Name

CMP
Rs.

Market Cap
Rs. Cr.

P/E

Motherson Sumi

319.20

67,200.84

28.41

Bosch

18,247.45

55,692.57

40.43

Exide Inds.

213.10

18,113.50

26.99

TI Financial

681.85

12,786.65

22.66

Amara Raja Batt.

813.55

13,896.45

30.16

Sundram Fasten.

579.05

12,165.84

33.63

Sundaram Clayton

4,769.20

9,649.09

36.14

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.