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THE sustained pick-up in automobile production in the current calendar year has translated into improved financial performance for quite a few companies including Motor Industries Company (MICO). Taking cognisance of the improved performance, the share price of the company too has improved from about Rs 2,140 in early January to the current level of Rs 3,005.

Taking into account the sustained growth in automobile production and the strong position of the company in its core area of operations, the business prospects for MICO appears positive. Long-term investors could contemplate equity exposure in MICO at current price levels.

Background: Better known as the manufacturer of spark plugs, the company is also a major player in fuel injection systems that are used in diesel engines. The company's product portfolio also includes power tools, auto electrical products and Blaupunkt brand of car audio systems. Given the product profile, the performance of the company has a direct linkage to the original equipment segment of the automobile industry.

Owing to slowdown in the commercial vehicle, tractor and passenger car output in the first three quarters of the year 2001, the financial performance of MICO was dented for the year ended December 2001. The turnover dropped 2.8 per cent to Rs 1,606.3 crore while post-tax earnings dropped by about 13 per cent to Rs 70.8 crore.

The company managed to mitigate the impact of automobile slowdown by shifting the focus to other business segments such as power tools and exports. Besides, the implementation of cost control measures including voluntary retirement scheme for employees has helped the company keep its overall cost under check. The adoption of a five-day week at its production units has also helped MICO reduce inventory levels and related costs.

<>Prospects: >As far as near term prospects are concerned, the sustained improvement in commercial vehicle and passenger car production in the current year would have major positive impact for MICO. This is already reflected in the form of improved performance in the first two quarters of current fiscal.

The performance could improve further as and when the compliance to the Euro II emission norms becomes mandatory across the country. On the other hand, the efforts taken to gain a more prominent presence in replacement and export markets would act as another revenue driver for MICO.

From an investment perspective, the lack of liquidity owing to low floating stock could turn out to be a major cause of concern. The company has already completed three buyback schemes, which has resulted in an increase in German parent's stake to 60 per cent.

The floating stock could inhibit institutional investor interest in the stock, which in turn could lead to relative under-valuation of the MICO scrip. In any case, from an individual investor's perspective, MICO would probably rank as a top portfolio pick from the auto-ancillary sector.

B. Krishnakumar

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