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Tuesday, January 8, 2008

SUNDARAM CLAYTON LTD. (TVS GROUP)

SUNDARAM CLAYTON LTD. (TVS GROUP)

SUNDARAM CLAYTON LTD. (BSE: 520056 NSE: SUNDRMCLAY)

Sundaram-Clayton Limited (SCL) is part of the US $3 billion TVS group of companies, the largest automotive component manufacturing and distributing group in India. SCL began its operations in Chennai in 1962, in collaboration with Clayton Dewandre Holdings Plc, UK, part of the US $ 2 billion WABCO Holdings Inc., SCL has pioneered the manufacture of air-assisted and air brake systems for commercial vehicles in India. With a commitment of total satisfaction to customers, the company has achieved a share of business in the OE (Original Equipment) segment greater than 85% and a market share in the after-market greater than 75%. The two ventures promoted by SCL viz. TVS Motor Company Ltd. for the manufacture of two-wheelers and TVS Electronics Ltd. for the manufacture of computer peripherals, have already made a mark in their respective segments.


SCL established its Die casting division for quality and high precision aluminium castings. The division's two plants, one at Chennai and the other at Hosur are equipped with the latest technology in Pressure Die Casting, Gravity Die Casting and Low Pressure Die Casting. SCL established its state-of-the-art Software design centre in 2005, an export oriented unit for the Design and development of Embedded and Application software for WABCO.


The company has also got substantial export market of its products.


FINANCIALS

The company has a share capital of Rs.18.97 Crores made up of 1.89 Crore equity shares of Rs.10.00 each. Promoter group (TVS group) and Clayton Gropu hold 80% shares, Mutual funds and insurance companies hold 8%, and other bodies corporate hold 1.6% shares. Thus the balance floating share with public is only 10% viz about 18 Lakhs. Therefore, the trading volume is very low. The company has reserves of 270 Crores which is considered extremely good.

For the FY ending 2006-07, the company made a net profit of 92.7 crores, commanding eps of 48.89 Crores. For the two quarters June 07 and Sept. 07 the company clocked net profit of 18 Crores and 23 Crores. On a conservative basis, the company may end up the full year with almost the same amount of net profit or slightly more. The eps may also be around the same figure, say around 50. However, if the profitability in the Dec. 07 and Mar. 08 quarters increase, the company may even end up with higher eps.

Auto and Auto ancillary sector are expected to get a rerating this year. Further, SCL is going to
demerge its Brake business into another company which has already been established, namely WABCO-TVS. Some restructuring in the share capital is also in offing. Matter is pending in Chennai High Court and decision is expected soon. As per scheme of things, the share capital of SCL will get restructured and all share holders of SCL will get one share of WABCO-TVS for every one share of SCL held by them. Record date will be announced by the Board shortly. However, it is expected that demerger process will be expected to be completed within 2-3 months.

During the last 12 months, the stock saw a high of Rs.1400.00 and low of Rs. 650. Presently the share is quoting near to Rs.850.00 which is closer to the low level. Therefore, the down side is fairly limited.

Considering the business potential long term investors can safely invest.

Kindly note:

a) We advise only regarding fundamentally strong and performing companies. The companies may be mostly profit making and in a few cases, they may be turn around companies.


b) Please go through our fundamental analysis carefully, verify the facts and figures (if you need to) and only then invest.


c) We expect investors to have a time horizon of at least one year and more.


d) We do not advise for short term investing, which is risky.


e) Despite all these, we do not take any responsibility for your financial matters. Investment is solely your decision.