Sona Koyo Steering Systems Ltd.

The company is in the business of auto ancillary and manufactures steering gears. It is a Rs. 287 crore company and is a joint venture with Koyo Seiko Company, Japan. The company is a market leader in steering systems with a 33% market share. It is also a tier I supplier to companies like Toyota, Maruti Suzuki, Hyundai and Tata Motors.

The industry has been growing at the rate of 12% and this means that the top lines have grown well. However with the increase in the steel prices there is some pressure on the margins. The company has been profitable right from its inception in 1988 and even now it has managed to undertake cost cutting measures and increase its profitability in the last fiscal. The company has also won the Deming Prize for Quality in 2003. There is a continuous effort to cut costs by reducing wastage. This is seen by the fact that the company has been able to bring down the external rejects which were initially as high as 50000 parts per million to 1000 parts per million. This has also meant that manufacturing costs as a proportion to the total turnover has gone down significantly and this has again helped ramp up the bottom lines.

The long-term game plan is to look towards exports and increase the percentage of exports to total turnover from the current 8.5%. The company has decided on a strategy of tie-ups with international players to achieve this. In line with this the company has taken a 21% stake in French Company Fuji Autotech France SAS for sum of 29.3 crores and has the option to increase the stake to 30%. Because of this arrangement the French major would use Sona Koyo as a sourcing partner and the company would be able to boost its exports. This strategy of looking abroad helps the company to grow more than the rate of the domestic market and also helps them to diversify their geographic risk.

At the current price of Rs. 63 the company has a multiple of 17 times its trailing fiscals’ earnings.