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B. Krishnakumar

LONG-TERM investors can include the Wheels India stock in their portfolio. Catering to almost all companies in the automobile industry, Wheels India is among the largest manufacturer of automobile wheels. Helped by the growth in automobile production, the company has recorded healthy growth in earnings in the recent quarters.

Taking into account the recent market fancy for auto ancillary stocks and the sustained growth in the auto industry, the financial performance and market price of Wheels India are likely to improve. Investors can contemplate equity exposure at the current market price.

The company supplies to almost all top auto producers and has recently taken efforts to expand its presence in the export market as well. This places Wheels India in a strong position to tide over any slowdown in domestic auto industry.

Considering the nature of the product, the Wheels India derives a major chunk of its revenues from the original equipment market. As a result, the performance tends to fluctuate in sync with automobile production. Aided by the recent spurt in automobile production, passenger cars and commercial vehicles in particular, the company's performance has displayed a steady growth.

For the first half of this fiscal, the turnover rose 23 per cent to Rs 214.5 crore and the post-tax earnings more than doubled to Rs 9.05 crore from Rs 4.19 crore. The performance would have been even better but for the sharp rise in price of steel which, in turn, had an inflationary impact on the raw material cost.

The firm trend in steel price continues to be a major cause of concern from an investment perspective. However, the robust volume growth is likely to help the company avert any significant dent to the bottomline. The sustained increase in auto production would continue to propel earnings growth for Wheels India.

The early signs of recovery in the tractor industry is another positive. The increase in export earnings and the decision to undertake production on behalf of global majors are other drivers of growth. Exports account for about 15 per cent of turnover against 11 per cent a couple of years back. With production facilities spread across three key locations (in proximity to the domestic auto majors) is another factor in the company's favour.

Considering the inherent strength and fundamentals, the share price has already moved up in the past few months. The stock may be included in the portfolio at present levels, considering the growth prospects and recent trend in earnings.

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