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Wednesday, October 7, 2009

Kew Industries Ltd:prospects/analysis/views/news/recomendation

Scripscan:Kew Industries Ltd

Story:Rising costs of raw materials may affect margins, as there is little pricing flexibility. Client concentration is another risk. Tata Motors and Ashok Leyland are the two main clients of Kew Industries.Given that automotive manufacturers have the upper hand in pricing and sourcing, suppliers face margin pressure constantly.As raw material prices may edge up further, the risks are higher.The company commenced exports few years ago. However, unlike a number of auto component players that have managed to create a global footprint either by acquiring companies or by creating a reliable outsourcing market, it may take a while for Kew's exports to start contributing in a big way; it is still in the process of exploring new markets.The company has a presence in the lower end of the value chain, where growth is completely volume driven and scaling up is a challenge.As the company does not have a dominant position in the industry or an established global market, unlike some of its larger peers, the business risks are high.Its vulnerability to a downturn is also high. Orders from the Defence and Railways are usually unpredictable.Investors can avoid Kew Industries, as the it operates in a low-margin, highly competitive, capital-intensive business.Move on better growth business with robust prospects and potential.

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