The two great things about this company are one that it is the biggest player in the field of automotive components in the country. Secondly it has large shares in the group companies whose value is not being properly reflected in the share price of the company.

Business of the Company

The sales of the company exceed 2 billion dollars and the growth prospects continue to look good. The good growth prospects can be attributed to the general uptrend in the economy and the automotive sector benefiting by this uptrend. The company derives its revenues from two main segments, which are air brakes and aluminum castings. While the air brakes division contributes over 79% of the revenue the aluminum casting division contributes to the remaining 21% revenue. Add to this the fact that the company has 85% share in the OEM market and is the only manufacturer of complete air brake system in the country. There is also a trend in the LCV segment of shifting from hydraulic brakes towards air brakes and Sundaram seems to be one of the major beneficiaries of this trend because of its leadership position in the segment. This shift is occurring because hydraulic brakes do not conform to international standards and therefore the trend is more or less irreversible.

Growth Triggers

Going forward the two growth triggers for the company would be the outsourcing and export thrust plus the development of anti lock air braking system known as ABS which has been developed by the company indigenously.

Why ABS is important would be clear from the fact that India is part of an agreement, which is called WP 29 and which mandates that all vehicles carrying hazardous chemicals would have to have ABS by January 2006 and all other commercial vehicles would have to have ABS by January 2007. This is expected to open up a new market of around Rs. 300 crores which the company is neatly poised to tap.

The aluminum casting business has been one of the main growth drivers of the company. Sundaram has won a contract with Volvo for the supply of engine and transmission castings for Volvo trucks. Besides this the company will also service its existing customers and therefore the need has been felt for capacity expansion. The company plans to expand capacity by to 22000 MT by the end of this year.

Investment in Group Companies

Sundaram Clayton is part of the TVS group and has major holdings in other group companies. These are 57% in TVS Motors, 60% in TVS Electronics and 58% in TVS Finance. The great thing about this is that the market capitalization of Sundaram is less than the value of these investments. This effectively means that by buying shares in the company one is getting proportionate shares in the group companies cheaper. Apart from the internal strengths of the company this will prove to be a great trigger as and when the company decides to unlock this value.

Conclusion

At the current market price of 725 the stock is quoting at multiples of 25 and to that extent seems fully priced, however any decline in the stock with the broad indices should be looked at as a good opportunity to enter the stock.