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B. Krishnakumar

TAKING into account the strong fundamentals and improved business prospects, long-term investors can contemplate equity exposure at the current price of Rs 129. Along with a host of auto ancillary companies, Wheels India has also benefited from the steady increase in automobile production in the recent quarters. The continued firm trends in automobile production and the foray into the export market would help the company report improved performance this fiscal.

Taking cognisance of the improved business prospects, the company's share price too recovered from the low of Rs 70 in March to the current level of Rs 129.

Wheels India is among the major wheel rim manufacturers in the country. It has a presence across almost all segments of the automobile industry. The company continues to enjoy a dominant position in the domestic market. Considering the nature of the product, the bulk of the company's revenue flows from the original equipment segment.

As a result, the financial performance has tended to fluctuate in line with the automobile production in the country. Helped by the recent increase in automobile production, passenger car and commercial vehicles, in particular, Wheels India reported a 15 per cent rise in turnover and a 183 per cent improvement in post-tax earnings. The performance would have been even better but for the depressed trend in the tractor industry.

Apart from the steady recovery in the automobile sector, the effort taken to tap the export market has also helped the company record improved performance. The growing contribution from exports, which accounts for about 14 per cent of the turnover, would lend some stability to the earnings stream.

The trend of improved performance has continued this fiscal as well. Turnover rose 3 per cent to Rs 91.1 crore and post-tax earnings 88 per cent to Rs 3.6 crore.

While the business prospects have improved, the profitability has been under pressure in the past few quarters owing to increase in price of the steel, which is the key raw material. Much of the growth in first quarter performance is explained by the drop in interest cost rather than by improvement in other operational profitability. The profitability would be strained further if steel prices continue to rule firm.

The company has now developed air suspension for buses and is likely to commence supplies to Indian market shortly. This coupled with the decision to undertake contract manufacturing on behalf of global wheel manufacturers would also help the company record an improved performance in the future.

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