The Hindu Business Line : Hopes on Maruti drive up Denso India stock

RIDING on the fortunes of Maruti Udyog Ltd, the stock of Denso India ended the day on a positive note on the bourses. The counter has been witnessing sustained market interest on the bourses in the recent past.

Market sources maintain that expectations of Maruti Udyog reporting good numbers for FY05-06, has infused an element of optimism at this counter. Analysts are looking at an EPS of Rs 30 for FY05 and Rs 35 for FY06 for MUL. Capacity constraint issues are only expected to come into play for Maruti by FY06-end.

Denso India, a joint subsidiary of three Japanese companies, Denso Corporation (47.93 per cent), Sumitomo Corporation (10.27 per cent) and Asmo Co Ltd (5 per cent) of Japan, is into manufacturing electrical automotive equipment. The company manufactures alternators and motor starters, CDI and magnets etc. A zero debt company, it reportedly has a 35-37 per cent market share. Its largest client in the auto industry is Maruti, which contributes almost 50 per cent of the company's total revenue. Maruti has a 10.27 per cent equity stake in the company.

Analysts maintain that the next major trigger will be when Suzuki's new plant is commissioned, which is expected to go on stream by the second half of FY06. Worldwide also, Denso is said to be a supplier of automotive components to Suzuki.

In the meantime, growth is expected to come via its domestic clients. "One can expect the company to witness a 40-50 per cent growth over the next two to two-and-half years. This is expected to come via new projects developed by companies like Maruti, HMSI, Hero Honda, Toyota Kirolskar etc," an analyst tracking the company said. Denso India is a vendor for all these companies. At these levels, the company's stock is said to be trading at a discount.

However, the fact that the company is vulnerable to the fortunes of a single client is cause for concern. Added to this, the fact that Denso Japan has four other subsidiaries in India — Denso Haryana, Denso Kirloskar, Denso Sales India and Denso Faridabad — has raised questions of parent outlook on India.

"There is the thought that without these four other entities, the company could have expanded its product portfolio," commented an analyst.

The stock ended the day at Rs 55.10, up 2.61 per cent, with around 31658 shares traded.

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