Asahi India Safety Glass: Buy

Recommendation: Buy

B. Krishnakumar

THE stock market appears to be consolidating around the recent lows.

The good monsoons in key States is a positive development from the farm sector's standpoint. There are also indications of a pick-up in the automobile industry with some sort of an increase in the offtake in the passenger car segment. Any sustained improvement in this sector will have a significant positive impact for Asahi India Safety Glass.

With the company deciding to issue bonus shares, the liquidity would also improve. Considering the company's position in the industry, long-term investors can take equity exposures.

Asahi India is the largest manufacturer of laminated and tempered glass in India. It has a technical-cum-financial collaboration with Asahi Glass Company of Japan. The products manufactured by the company are used as windshields, side and rear glasses for automobiles.

The company derives close to 90 per cent of its revenues from the original equipment (OE) segment of the automobile industry. It commands a market share in excess of 80 per cent in this segment. Asahi India is OE supplier to Ashok Leyland, Tata Engineering and Swaraj Mazda in the commercial vehicles segment. In the passenger car market, it is the single largest supplier to Maruti Udyog. It also sells to Ford, Hyundai and General Motors.

Considering that the OE segment is the primary source of demand, Asahi India's fortunes are linked to automobile production. In the auto sector, the passenger car segment accounts for a chunk of the company's income.

After a sharp improvement in 1999-2000, the automobile sector passed through a major slowdown in 2000-01. The performance of Asahi India was also affected due to the dependence on the OE segment.

For the year-ended March 2001. Asahi India's turnover remained almost static at Rs 193.62 crore (Rs 190.95 crore) while the post-tax earnings declined by about 15 per cent to Rs 7.96 crore. On the equity base of Rs 3.7 crore, the per share earnings works out to Rs 21.51.

Besides the slowdown in demand, the sharp depreciation in the value of the rupee vis-a-vis the dollar also played a role in affecting the financial performance. Given that the company sources a significant proportion of its raw materials through imports, the fluctuation in the value of the rupee would have a major impact on profitability.

To reduce the dependence on the OE segment, the company recently ventured into the architectural segment. It is also devoting greater attention to the replacement export market. The recent decision of Asahi Glass to enhance the stake in Floatglass India is a positive development. This would eventually help Asahi India source raw materials from Floatglass India.

Taking into account the strong fundamentals, the top position in the industry and the improvement in liquidity consequent to the bonus issue, the company's valuation is likely to improve. Any pick up in the auto sector would also help push up the share price. Long-term investors could consider Asahi India as a portfolio candidate with some high degree of risk.