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Thursday, October 29, 2009

Sona Koyo Steering Systems Ltd:Future growth prospects and outlook

Scripscan:Sona Koyo Steering Systems Ltd

Story:Sona Koyo is the largest manufacturer of steering systems in India, catering to passenger cars, utility vehicles and light commercial vehicles. The company has technical and financial collaboration with JTEKT Corporation, Japan, which is the largest producer of passenger-vehicle steering systems in the world.Exports contribute few percent of the revenues. The company is focussing more on Europe than the US. Its joint venture with Fuji Kiko Group, the market leader of steering columns in Europe, will enable Sona Koyo gain considerable foothold in European markets. Overall, the Auto Industy is exhibiting a positive turnaround over the last few quarters.The expected growth in domestic passenger car sales augurs well for the company. Because of its market leadership position, the company is favourably placed to tap this growing market. Hence, on increasing volumes and on improving operating leverage, we expect Sona Koyo to clock an EPS of Rs0.7 in FY2010E and Rs1.5 in FY2011E. At the CMP, the stock is trading at fair valuations of 10x FY2011E Earnings.The company’s market leadership position, healthy order flows, superior product-mix and localisation efforts indicate that earnings can gain traction over three-five years. Considering that the stock has been on a steady move upwards in the last few months, the sharp fall in market price in the recent correction presents a good opportunity to buy.

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