Mico: Sparkling times

Bosch will add another Rs 850 crore by 2010

Bosch has announced that it would increase its investments in Mico. The German parent had originally proposed to invest Rs 1,800 crore in Mico between 2005 and 2008, but will add another Rs 850 crore by 2010. Bosch has already increased its stake from 60.6 per cent till the June 2007 quarter to 69.7 per cent in the September quarter.

The announcement of increased investments, however, failed to sustain the rally on the Mico counter. The upmove had begun on Tuesday when the share price rose by 17 per cent.

Mico, which is a leading manufacturer of diesel injection systems and spark plugs, has now added car multimedia and security systems. The funds infusion will enable the company to set up facilities for petrol systems, electronic control units and ABS (anti-lock braking systems).

The introduction of new products makes sense following the strong demand from customers such as Maruti. Mico will benefit from the long term growth potential of the Indian auto sector, analysts highlight.

It had grappled with the sluggish demand from key customers in the commercial vehicle segment including Ashok Leyland and Tata Motors in the September 2007 quarter.

The company's operating profit in the quarter thus grew by a mere 2.2 per cent y-o-y to Rs 224.4 crore and operational income grew 4.7 per cent to Rs 1061.3 crore.

Meanwhile, the operating profit margin declined 60 basis points y-o-y to 21.1 per cent.

The traded goods as a percentage of total operational income rose by 230 basis points y-o-y to 21.4 per cent in the last quarter, thereby pressurising the margins.

At a price of Rs 4954, Mico appears expensive as it trades at 30 times estimated CY07 earnings and 26 times CY08 earnings.