Lakshmi Auto
The company is associated with the TVS group. It is a subsidiary of TVS-Suzuki which holds a 65.33 per cent stake. The group has a very investor-friendly image and an insatiable appetite for public funds has never been associated with this business group. LAC makes crankshafts, gears and connecting rods for two-wheelers. The bulk of its production is consumed by TVS Suzuki.
TVS Suzuki has been growing at above industry growth rates which has ensured that LAC too keeps growing at rates higher than those of the auto ancillary industry. While the two-wheeler industry grew by 2.06 per cent to 2,240,685 vehicles in April-December 1997, TVS Suzuki's sales grew 9.9 per cent to 421,642 vehicles during the same period. This trend was seen in 1996-97 too when TVS Suzuki sales grew by 25 per cent against the industry growth rate of 11.5 per cent which led to LAC recording a sales growth of 48 per cent during the period.
This in turn ensured LAC achieved the projections made during its 1996 issue. This is commendable given the performance of the other auto component manufacturers. Its 1996-97 sales were in line with projections. It has projected a sales of Rs 34.3 crore and a net profit of Rs 6.3 crore in 1997-98.
It has achieved sales of Rs 15.11 crore and a net profit of Rs 3.51 crore in the first half of the current fiscal. Traditionally, sales in the second half are better and LAC should be in a position to comfortably meet its projections. Figures available for January indicate that TVS Suzuki's sales are up 19 per cent on a YoY basis.
The rights expansion is to enable the company to grow in tandem with TVS Suzuki's growth plans.
With several expansions and new products on the anvil, involving an outlay of Rs 400 crore spread over the next five years, it is imperative for LAC to expand to be able to meet the parent's requirements.
After the last rights issue, its monthly capacity to supply components has increased from 34,000 vehicles to 56,000 vehicles. A healthy growth in the two-wheeler segment will ensure that earnings growth is not stunted by equity dilution. Thus sentiment for the stock is unlikely to be affected by news of the rights issue.n