Checking Out The Survivors

Companies with reduced dependence on the OE supplies and with a strong presence in the replacement market should do well. Though competition is high in sectors like brake linings and shock absorbers, reduction in excise duties will make the organised sector competitive. Those with growing exports can also be good from an investor view point in the long term.

Companies with technical know-how and R&D facilities with an ability to indigenise would also do well in the long term. Some stocks worth tracking are:

IP Rings: Belonging to the Amalgamations group, the company has fared well since inception. Its product mix and future thrust on exports will contribute to better performance.

 

Though IPR at present has 70 per cent of its turnover accruing from OE supplies, the management gameplan is to bring this down to a 50:50 mix. Besides, with its expanded capacity at 45 lakh units per annum, the company has a diversified customer base of trucks, cars and two-wheelers. There is also a likelihood of exports to its collborator, Nippon Pistons of Japan.

With its key promoter being India Pistons, the company has access to the vast distribution network of IPL, which helps promote its products in the retail markets. Another advantage is the complementary nature of the two companies' products which helps IPR tap the well-established clientele of its promoter. Value-addition is high as the rings are made from the winding stage.

In 1995-96, the turnover and net profit grew around 28 and 24 per cent respectively. EPS was around Rs 8.5. With further expansions, the next few years may see higher interest and depreciation provisions, but entry barriers will assure its products a sustained demand. The stock quotes at around Rs 120.

Ucal Fuel Systems: The share quotes at Rs 70. Fiscal 1995-96 was good with turnover growing from Rs 45.7 crore to Rs 63.4 crore. Net profit similarly grew to Rs 8.25 crore from Rs 4.43 crore, a growth of 86 per cent.

UFS has a tie-up with Mikuni of Japan which has not only given it access to the new fuel injection systems techology that is replacing carburetors in the west, but has also boosted exports. Mikuni is now sourcing carburetors from UFS for its Asian market requirements.

Despite good technology, UFS has focused on indigenisation and in carburettors the import content has dropped to 7-8 per cent. This has contributed to better profit margins with an increase in sales volumes. Even with the new emission norms coming into force, the company was able to adapt its product without delay in supplies.

The only concern is that 80 per cent of the company's turnover accrues from supplies to Maruti. However, this will decline in future as the company increases exposure in other segments like two-wheelers. Though the EPS doubled last year to touch Rs 12, this year may see at least a 25 per cent growth.