Sundram Fasteners – Results on 9th May 2018

Price: 597

Sundram Fasteners Limited (“SFL” 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.

SFL 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.

WHAT’S DRIVING THE STOCK

Uptrend in the Automobile Industry

In the April-March period of FY 2018 — sales of commercial vehicles rose 19.94%, while two-wheeler sales gained 14.80%. Passenger vehicles sales also increased at a healthy rate of 7.89%. Within passenger vehicles, sale of passenger cars, utility vehicle and vans grew by 3.33%, 20.97% and 5.78% respectively.

Category	2016-17	2017-18	% Change
Passenger Vehicles	3,047,582	3,287,965	7.89%
Commercial Vehicles	714,082	856,453	19.94%
Three Wheelers	511,879	635,698	24.19%
Two Wheelers	17,589,738	20,192,672	14.80%
Grand Total	21,862,128	24,972,788	14.23%

The performance of SFL is largely dependent on 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 Automotive, Wind Energy, Aviation, Aerospace, Farm Equipment, Infra and Defense sector.

• 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-wheelers, front wheel drive vehicles and internal combustion engines. 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

Sundram Fasteners Enjoys Monopoly Position in Fastener Business

SFL enjoys a 70% market share in fastener business and to maintain its position, Sundram Fasteners 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 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

SFL 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 SFL’s revenue dipped from 43% to sub-40% levels. SFL’s efforts to tap 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, 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, export revenue increased by 14.97% to Rs. 1,044.11 Cr. From Rs. 908.12 Cr. For nine months ended 31^st December, 2017, SFL’s export revenue was up 9.9% to Rs. 842.56 Cr.

SFL’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. 596 (closing price for – 8 May 2018), SFL’s trailing 12 month PE comes to 34.2 which is a 73% premium to its 5 year average PE Multiple of 20.58.

Intense Competition

Name	CMP Rs.	Market Cap Rs. Cr.	P/E
Motherson Sumi	346.05	72,854.23	28.41
Bosch	19,449.90	59,362.53	40.43
Exide Inds.	248.10	21,088.50	26.99
Amara Raja Batt.	862.80	14,737.70	30.16
Sundram Fasten.	583.15	12,253.64	34.08
Sterling Tools	400.15	1,441.51	31.57
GKW	826.85	493.34	49.69

 

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