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Monday, October 12, 2009

Tube Investments of India Ltd:Future growth prospects and outlook

Scripscan:Tube Investments of India Ltd

Story:TII has its presence across three business segments — metal-forming, engineering and cycles. The metal-forming division supplies doorframes to car manufacturers such as Maruti and Hyundai for their specific models.With a 65 per cent market share in the manufacture of roll-formed car doorframes, TII is likely to be a big beneficiary of an automobile boom. However, since the doorframes are model-specific, revenues for this division depend, to a large extent, on the success of the particular car models.The division also makes chains for automotive and industrial purposes. The revenue contribution from this segment is likely to improve on the back of a healthy demand environment in the two-wheeler industry. In addition to this, the existence of a sizeable replacement market for such chains underscores the growth prospects for this segment.The cycle division of TII, however, has been a laggard. In spite of double-digit sales figures, the division's contribution to the overall profitability hardly remained a few percentage points of its sales.However, the shift in the company's product mix towards more of engineering and metal-forming goods is likely to reduce its dependence on the cycle business. Also, TII's holding in Cholamandalam MS General Insurance and Cholamandalam DBS Finance could see some value unlocking in the future. However, the same has not been factored into the valuation of the stock. Robust demand environment, planned expansion in capacity and an expected improvement in operating margin are likely to enhance earnings growth.The expected boom in the automobile industry is also likely to rub off positively on TII's metal-forming division, which, we believe, will be the growth driver.Though the stock price has declined in the recent past, the planned expansion and growth prospects are likely to favour its performance in the long run.A good buy at dips.

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