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Raghuvir Srinivasan

THE stock of Lakshmi Auto Components has been on the ascendant in the current market rally. From around Rs 71 in early May, the stock has appreciated 65 per cent to trade at around Rs 117 now. In the last couple of weeks alone, the stock has gained 17 per cent, moving up from the region of Rs 100. Investors looking for a conservative low-cap stock with the assurance of moderate returns can consider buying the Lakshmi Auto stock at current levels.

Lakshmi Auto is a subsidiary of the two-wheeler major, TVS Motor Company. It produces engine components for two-wheelers such as crank-shafts, connecting rods, apart from gear and steering parts on a sub-contract basis for TVS Motor. Besides, Lakshmi Auto also produces rubber and plastic moulded components for use in two-wheelers.

The fortunes of Lakshmi Auto are linked to that of its holding company and principal customer, TVS Motor, which is riding the crest of the boom in motorcycle sales.

In the first four months of this fiscal, TVS Motor's motorcycle sales has grown at double the pace of the overall market — while total motorcycles sold rose by 10.41 per cent, TVS Motor has seen its sales grow by 22.61 per cent. This should be good news to Lakshmi Auto as it would lead to increase in its sub-contracting income as well as in sale of other components. In the first quarter ended June 30, Lakshmi Auto's gross revenue grew by 8 per cent though the bottomline growth was smaller at about 5 per cent. With the ramp-up in TVS Motor's sales now, the current quarter should prove to be better for Lakshmi Auto.

The company is also concentrating on exports in the last one year. Though at Rs 1.98 crore in 2002-03, it was miniscule compared to the total turnover of Rs 192.13 crore, the top management of the company has stated its intent of focussing on exports more in the future. For instance, exports in the first quarter were already worth Rs 1 crore, which is 50 per cent of the total exports of the company in 2002-03.

Lakshmi Auto is also investing in assets to expand its capacities. Further to its investment of Rs 44 crore in 2002-03, the company plans to invest Rs 24 crore this year in plant and machinery.

A possible restructuring of Lakshmi Auto Components could have a bearing on the stock price trends. The proposal appears to be to transfer the rubber and plastic components division to Lakshmi Auto's subsidiary, Sundaram Auto Components, and merge the main engine components division with TVS Motor.

The company's top management maintains that there is no concrete plan as of now. Nevertheless, investors need to note this possibility while committing investment in the stock.

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