The Hindu Business Line : Lakshmi Auto: Buy

QUITE a few companies have benefited on account of the robust demand for motorcycles. Lakshmi Auto Components is one such company that has seen its performance improve owing to pick-up in motorcycles sales, especially at TVS Motors end.

Considering the sustained increase in motorcycle sales volume of TVS Motor and the recent drop in share price, investors could include Lakshmi Auto Components in their portfolio. At the current price of Rs 57.75, the scrip trades at the price-earnings multiple of *** times the latest earnings.

The company makes critical components such as crankshafts, connecting rods, cylinder blocks, steering gears, automotive gears and shafts that find application in two-wheelers. Forming part of the TVS group, TVS Motor is the single largest customer for Lakshmi Auto Components.

Given this backdrop, the company's performance has tended to fluctuate in sync with that of TVS Motor. Owing to sharp drop in motorcycle sales volume, TVS Motor's financials took a knock in the recent years. The financial performance of Lakshmi Auto has reflected this trend.

For the year ended March 2001, Lakshmi Auto's turnover increased by about 9.6 per cent to Rs 86.4 crore while the post-tax earnings dropped 10 per cent to Rs 10.8 crore. However, the successful launch of the four-stroke motorcycle models — Victor and Fiero — by TVS Motor has had a positive impact on the financials of both Lakshmi Auto and TVS Motor.

Victor was fully designed and developed by TVS Motor without any inputs from the erstwhile collaborator Suzuki Motor of Japan. As a result, the bulk of the requirements of critical components for this model would have been sourced from Lakshmi Auto.

Considering that Victor was launched in the second half of the previous fiscal, the company's financial performance has seen a noticeable improvement during the six months ended March 2002.

The turnover increased 20 per cent to Rs 52.39 crore and post-tax earnings 45.2 per cent to 7.26 crore during this period.

The sales volume of TVS Motor has seen a steady increase in the current fiscal as well with turnover rising 54.22 per cent to Rs 31.09 crore.

This was also reflected in post-tax earnings, which doubled to Rs 4.69 crore from Rs 2.18 crore.

Considering that TVS Motor is set to launch more models, this could only translate into a higher demand for Lakshmi Auto's products.

Besides, TVS Motor is also slated to indigenise the Fiero model, which was originally developed in conjunction with Suzuki Motor of Japan. This indigenisation drive would open a new window of opportunity for Lakshmi Auto from the second half of the current fiscal.