Sona Koyo stock likely to go up by 35%

Sona Koyo stock likely to go up by 35%

By Rajiv Kapoor | 18 November, 2017

The Indian auto component industry has experienced healthy growth over the last few years. Some of this is attributable to a buoyant end user market, improved customer sentiment and return of adequate liquidity in the financial system. The auto component industry in the country has expanded by 14% because of strong growth in the after sales market, to reach a level of Rs 2.92 lakh crore during the year 2017. The auto component industry accounts for almost 7% of India’s Gross Domestic Product and employs as many as 25 million people, both directly and indirectly. A stable government framework, increased purchasing power, large domestic market and an ever increasing development in infrastructure have made India a favourable destination for investment. The Indian auto component industry can be broadly classified into the organised and the unorganised sectors. The organised sector caters to the original equipment manufacturers (OEMs) and consists of high value precision instruments, while the unorganised sector comprises low value products and caters mostly to the aftermarket category. The total value of India’s automotive aftermarket stood at Rs 56,098 crore in FY 2016-17, while exports were at Rs 73,128 crore, as compared to Rs 70,916 crore for the FY 2016. This has been driven by strong growth in the domestic market and increasing globalisation of several Indian suppliers. The Indian automotive aftermarket is expected to grow at a CAGR of 10.5% and reach Rs 75,705 crore by 2020. According to a report by Automotive Component Manufacturer Association of India, the Indian auto components industry is expected to register a turnover of US$100 billion by 2020, backed by strong growth. The rapidly globalising world is opening up newer avenues for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid vehicles that are deemed more efficient, safe and reliable modes of transportation. This makes the Indian components industry set to become the third largest in the world by 2025. Sona Koyo Steering Systems Ltd forms part of the JTEKT Corporation Japan, which holds leadership position in the manufacture and sale of steering systems, driveline components, bearings, machine tools, electronic control devices and home accessory equipment. It is the country’s largest manufacturer of steering system and is the supplier of choice for major auto manufacturers supplying steering gears to almost all major Indian passenger car and utility vehicle manufacturers. JTEKT Japan currently holds 70.45% of the total shareholding in Sona Koyo Steering Systems Ltd. Net sales for the third quarter of the current year stood at Rs 302.78 crore, with net profit at Rs 6.98 crore, as against Rs 293.18 crore and Rs 5.63 crore, respectively for the second quarter of the same year. At the current market price of Rs 108, the Sona Koyo stock can appreciate by 35% to a target price of Rs 145 in the next two financial quarters. We had recommended the Sona Koyo stock a few months ago at a price of Rs 85 to our readers and hence advise them to add the stock in their portfolio for further gains.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

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