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Sundram Fasteners mulls high-profit, aircraft parts biz

Sundram Fasteners mulls high-profit, aircraft parts biz
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First Published: Tue, Sep 29 2009. 01 01 AM IST
Updated: Tue, Sep 29 2009. 01 01 AM IST
Chennai: Automotive components maker Sundram Fasteners Ltd is eyeing a shift from low-cost auto parts to high-profit, technology-intensive components via acquisitions and an entry into the aircraft parts business, according to a top company official. But some analysts say these measures may be too little, too late.
In a tough year for the auto sector worldwide, Sundram Fasteners’ profits plummeted in 2008-09 due to a slump in both domestic and export demand, higher raw material prices and a weaker rupee that pushed up interest expenses on overseas loans.
“Sundram Fasteners as a company has been conservative and their growth could have been much more if they had been slightly aggressive,” says Amit Kasat, auto analyst with brokerage Anand Rathi Financial Services Ltd. “They are doing the right things by looking at diversification into producing fasteners for aircrafts and entering other businesses. The issue is about the timing. They should have done this two years ago.”
At least a decade ago, Chennai-based TVS Group’s Sundram Fasteners became one of the first Indian companies to export auto components. In the 1990s, it was the principal supplier of radiator caps for US-based General Motors Co., then the world’s largest car maker.
Today, Sundram Fasteners has been overtaken by Pune-based Bharat Forge Ltd that burgeoned through acquisitions to become India’s largest exporter of auto components. And the badge of being a GM supplier has lost sparkle after the US firm’s struggle for survival that ended with it filing for bankruptcy earlier this year.
Sundram Fasteners sales were up just 5% in 2008-09 and profits nosedived 75%, nowhere near its heady growth of 2004 when sales soared 50% and profits scaled up 28%.
To emerge from this precipitous drop, chairman and managing director Suresh Krishna is mulling acquisitions of high technology firms in countries such as the US, entering businesses such as wind turbines, and is negotiating to supply components to aeroengine maker General Electric Co. and European plane maker Airbus SAS.
“We want to get into hi-tech engineering businesses that are capital- and technology-intensive,” Krishna told Mint during a recent interview in his Chennai office.
The key for Sundram Fasteners lies in moving from an overarching dependency on fasteners, which comprises about 40% of its sales. However, entry barriers in the aircraft parts business are high and it takes three-five years to qualify as an aircraft parts manufacturer.
Moreover, plane makers, too, are clamping on production amid weak demand for air travel.
“We are likely to get into the aerospace business next year, but for the benefits to filter into the top line and bottom line it will take at least two years,” says V.G. Jaganathan, president of finance for Sundram Fasteners.
The company may set up a new factory in India to manufacture aircraft fasteners but Jaganathan didn’t reveal investment plans.
Usually, ancillary companies are given design specifications by the original equipment makers, which have several vendors competing on costs by tweaking the manufacturing process for maximum efficiency.
“Many Indian companies, to a large extent, do not have the energy or the ability to work on products that will come into being five years from now, which is where you really get the money,” says K. Kumar, a consultant with accounting and consulting firm Deloitte. “It would be interesting to see how auto component makers evolve into technology companies.”
One route to access cutting-edge technology is by acquiring companies. However, unlike acquisitions by competitors such as Noida-based Motherson Sumi Systems Ltd, which earlier in 2009 acquired Visiocorp, the world’s largest makers of rear view mirrors, Krishna’s quest has always been for small boutique companies with niche products.
For example in 2005, Sundram Fasteners bought Germany’s Peiner Umformtechnik, a maker of special fasteners for the automobile, industrial and construction sectors. While the dialogue with aircraft makers continues, Krishna has commissioned a study to identify other potential non-auto component businesses for the company.
Krishna denies the “risk-averse” tag attached to Sundram Fasteners, but he is in no rush to pick up companies for cheap during the slowdown and prefers waiting for growth to revive.
anupama.c@livemint.com
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First Published: Tue, Sep 29 2009. 01 01 AM IST