Date April 23rd 2008

Sona Koyo Steering System Ltd. (SKSSL) is the largest manufacturer of steering gears in India with market share of over 50 percent. The company at present has three manufacturing facilities at Chennai, Nashik and Gurgaon with combined capacity of over 1.5 million units. The company intends to double the capacity through greenfield plants at Singur, Uttaranchal and Bawal in Haryana over next 3-4 years. The company derived nearly 53 percent of revenue from Maruti Suzuki India Ltd and top 6 clients contribute nearly 90 percent of top line. The company has reported 17.8 percent growth in net sales to Rs683.60 crore in FY08 whereas the net sales for Q4FY08 registered a growth of 10 percent to Rs194.30 crore. The full year EPS of the company declined by 12.7%. This was partly on the back of rising input cost and partly due to equity dilution. However the company is expected to pass on the rise in input cost to its customers and also obtain better pricing from its vendors in the coming time.

The company has formed a (49:51) JV with JTEKT of Japan to serve the steering system requirement for small cars up 1500 CC segments. The proposed JV would be focused to the clients like Tata Motors, Toyota and Nissan etc. The company would be investing Rs160 crore for greenfield facility at Bawal in Haryana, the proposed JV is expected to contribute approx Rs320 crore in the topline from FY11 onwards.

SKSSL has an aggressive capex plan of Rs400 crore to be spent over next 4 years for capacity expansion from current level of 1.5 mn units to 3 mn units. The plant at Uttaranchal is to serve the Electronic Power Steering (EPS) systems for small cars and Column- Electronic Power Steering (C-EPS) System for Ace of Tata Motors. The company would be supplying 40% of C-EPS for Tata ACE from Uttaranchal facility. The company has set up a unit in Singur, West Bengal expected to be operational by September 2008 for Tata’s upcoming Nano where it has secured orders for 50 per cent of the steering gears (125000 units) and 100 per cent of the Sub-assemblies (250,000) during the first phase. The potential revenue from Nano would be 20Cr which is expected to double in the 2nd phase. The company expected to sell nearly 60000 units of EPS in FY09 and 200000 units of EPS from FY2010 onwards. SKSSL is expected to generate better margin and realization from electronic power steering (EPS) with improved localization contents going forward. At present EPS comprises of nearly 80 percent of imported material from Japan which company intents to reduce to 30 percent by 2010. Going forward, the greater interest from global OEM’s to make low cost countries like India as a small car hub for export markets, are expected to push the demand for EPS, the company at the same time expanding its focus to European market for export due to appreciating rupee against dollar and 50 percent of export revenue is expected to be contributed by European market.

The company has reported 17.8 percent growth in net sales to Rs683.60 crore whereas the net sales for Q4FY08 registered a growth of 10 percent to Rs194.30 crore.

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