Sona Koyo Steering is India's largest manufacturer of steering systems and is the supplier of choice to major auto manufacturers with over 45% domestic market share, supplying steering gears, columns and RPS assemblies to almost all Indian passenger car and utility vehicle manufacturers.

Quarter Performance

In the quarter ended Sept ’07, the company’s net sales spurted by 19% to Rs 164.56 crore backed by equal growth of 19% each in both its domestic sales and exports. Its domestic sales, that contribute 91% to its net sales, grew by 19% to Rs 149.82 crore. The exports increased by 19% to Rs 14.74 crore contributing the balance 9% to the company’s net sales.

Its operating profit margin (OPM) grew by 110 bps to 10.7% courtesy decline in both its raw material cost and other expenditure. Raw material cost, as % to sales (net stock adjusted), reduced by 80 bps to 72%. Other expenditure declined by 60 bps to 10%. However staff cost rose by 30 bps to 7%. It led to 33% growth to Rs 17.66 crore in its operating profit.

The other income declined by 3% to Rs 0.74 crore. Further the increase in interest cost and depreciation cost by 24% and 22% to Rs 2.78 crore and Rs 3.60 crore respectively restricted the profits. The profit before tax (PBT) stood at Rs 12.02 crore, up by 36%. However, extraordinary income representing gain on foreign currency loan translation spurted by stupendous 331% to Rs 1.55 crore uplifting the profits. The resultant PBT after EO increased by 47% to Rs 13.57 crore. However high tax provision by 68% to Rs 4.78 crore played spoil sport. The net profit settled with 38% growth to Rs 8.79 crore.

Half-Year Performance

The auto component major posted good growth of 25% to Rs 317.20 crore in half year ended Sept’07. It is attributed to decent growth in both its domestic sales and exports. Its domestic sales increased by 26% to Rs 289.26 crore representing 91% of the total net sales. Its exports grew by 14% to Rs 27.94 crore representing the balance 9% of the total net sales.

Decline in raw material cost and other expenditure led to growth by 90 bps to 10.6% in its OPM. In terms of cost as % to sales (net stock adjusted), the raw material cost reduced by 80 bps to 72%. Other expenditure reduced by 50 bps to 10%. The staff cost rose by 40 bps to 7%. The resultant operating profit surged by 36% to Rs 33.70 crore. Its other income grew by 5% to Rs 1.35 crore. However its interest cost grew by 11% to Rs 4.90 crore. Also its depreciation cost rose by 17% to Rs 7.07 crore. The PBT before EO was restricted with 48% growth to Rs 23.08 crore. However on accounting EO representing gain on foreign currency loan translation of Rs 2.82 crore in half year ended Sept’07 against loss on foreign currency loan translation of Rs 0.70 crore in half year ended Sept’06, the profits were lifted significantly. The PBT after EO surged by 74% to Rs 25.90 crore. However high tax provision limited the growth to 67% to Rs 16.77 crore in net profit.

Recent Development

The company is entering into Joint venture with JTEKT Corporation, its existing Japanese collaborator. The JV would manufacture column type electric power steering systems. The production would commence from 2010. The necessary application for obtaining approval to establish the joint venture has been made to the Foreign Investment Promotion Board.

Currently the scrip is trading around Rs 42.