Buy Sundram Fasteners, price target Rs 760: Anand Rathi

Anand Rathi has given a buy rating on Sundram Fasteners with a price target of Rs 760

KEY FINANCIALS

Sundram Fasteners reported a 7.5 per cent growth in consolidated sales at Rs 11,806 million in Q1-FY20 as against Rs 10,983 million in Q1-FY19. The company’s continued investments for manufacturing of new products are expected to result in further improvement in performance going forward.


On profitability front, the company's operating margins have declined by 144 basis points to 16.3 per cent at Rs 1,924 million in Q1-FY20 as against 17.7 per cent at Rs 1,948 million in Q1-FY19. Its PAT margins for the latest quarter stood 8.1 per cent at Rs 955 million in Q1-FY20 against 10.2 per cent at Rs 1116 million in Q1-FY19.

The company is significantly adding capacity and has incurred R .4,420 million capital expenditure in FY19. The capital expenditure was incurred in order to augment capacities for meeting the increase in volume of business and in tandem with production plans of key customers.

INVESTMENT RATIONALE

To further SFL's growth in non-automotive segments, the company has incorporated a new wholly-owned subsidiary named "Sunfast TVS " on April 8, 2019. The new company will focus on the Aerospace and Defence segments. The company has orders for forged, cast and machined parts for all terrain and land systems vehicles for defence. The Company will also focus on parts for armoured vehicles and trucks. The Company will continue to grow SFL's existing business in space vehicles and helicopter components.

SFL expanding its capacity and making concentrated efforts to improve the product mix with focus on high-value products and increased contribution of exports. SFL is a quality ancillary player with robust return ratios and is poised to further improve its earnings growth momentum.

“Anticipating the future growth potential of the auto component industry and the positioning of SFL as a multi-product and multi-location company, we believe that it has high growth potential. We maintain our buy rating on the stock with a target price of Rs 760 per share,” the brokerage said.