The Hindu Business Line : Asahi India: Buy

LONG-TERM investors may consider equity exposure in Asahi India Glass at prevailing levels and on price weakness. The company appears to be taking steps to log a steady growth in earnings. Its efforts to move up the value chain and its thrust on the architectural glass market are positive features. Asahi India is also aggressively expanding capacity, which will help it to exploit the growing demand for automotive glass.

The company is the largest manufacturer of automotive safety glass in the country. It caters to almost all the automobile producers. Its clientele includes auto majors such as Maruti, Hyundai, Ford, Mahindra & Mahindra, Tata Engineering and Toyota. The growth in automobile production over the recent years has had a positive impact on the company's performance.

The financial performance in the second quarter of this fiscal was, however, not too impressive. The turnover remained almost flat at Rs 181 crore while the post-tax earnings dropped to Rs 0.44 crore from Rs 19 crore. The heavy rain that lashed Mumbai led to a massive disruption of its production facility at the Taloja plant. As a result, the company spent about Rs 18 crore during the second quarter.

With the company already hampered by capacity constraints, the disruption at the production unit did not help the cause. To address this problem, the company has embarked on a major capacity expansion project. It has commissioned a new production facility near Chennai and plans to further expand capacity. It is also setting up an architectural glass unit in Chennai. Asahi is setting up an integrated glass production unit at Roorkee, Uttaranchal. This unit is expected to become operational in 2006-07.

Capacity at the existing plants at Taloja and Rewari are also being augmented to cater to the growing demand. With production facilities spread across various locations in the country, the company is better placed to cater to its wide clientele base.

The plant in Chennai will help the company save on freight costs and bring it closer to key customers such as Ford, Hyundai and Toyota.

The company appears to be gearing for a steady phase of growth. The recent efforts to de-risk its business model (by moving into the architectural glass market) along with capacity expansion will be key growth drivers.

Given its dominant position in the automotive glass industry, the sustained growth in the commercial vehicle and passenger cars will continue to push up revenues for Asahi India.

Taking into account these factors, long-term investors may include this stock in their portfolio.

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