With better days back for the auto sector, TVS group company Sundram Fasteners Ltd rolled back some of its cost reduction measures in the March quarter, which hurt profitability of its stand-alone operations.
A retrospective wage hike and a long-term settlement in two of its factories resulted in a 29% hike in employee costs on a year-on-year (y-o-y) basis.
The company said that its additional usage of captive power and higher input costs, too, led to higher expenses. As a result, Sundram Fasteners’ total expenses grew by 46% y-o-y and 4% sequentially to Rs335.6 crore.
However, a 61% y-o-y jump in its revenue to Rs360.3 crore gave it the leverage to post an operating profit of Rs37.04 crore, despite higher expenses incurred. Sequentially, revenue growth was flat.
The company management says that the improvement in the heavy commercial vehicles segment seen in the beginning of the second half of fiscal 2010 has not been as robust as expected.
Around 35% of Sundram Fasteners’ annual revenue of Rs1,336.6 crore accrues from the medium- and heavy-duty vehicles segment.
Higher costs have taken their toll—from around 16% in the June 2009 quarter, the operating profit margin has declined to 10.3% in the March quarter.
The company registered a net profit of Rs17.21 crore for the quarter, compared with a loss of Rs5.3 crore in the year-ago period. Sequentially, however, net profit declined 18%.
While subsidiaries in emerging markets fared well, those catering to the developed markets posted lacklustre performance given that US markets are yet to gain momentum and the European markets are still dismal.
Two months into the June quarter, the outlook is promising. Operating at around 80% of its capacity, the company plans to introduce additional products in the current fiscal as the market is buoyant across automobile segments. The firm’s revenue is estimated to grow by 20% over the next two years.
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