Sona Group Plans Rs 100 Crore Capex

Sona Group Chairman Surinder Kapur today said, “Our investment plan for this year is of Rs 100 crore. This will mainly go into setting up of two new plants at Dharuhera. The first plant will be operational in the next month, while the second one will be ready by the end of this year.” Sona Group is primarily involved in the manufacturing of automobile components ranging from steering systems to stampings and forgings. With today’s statement, the stock prices of the group’s listed entity, Sona Koyo Steering Systems Limited, saw an intraday high of as much as 2.92 per cent.

The auto components manufacturer recently saw a downfall in stock prices due to the production halt at Maruti’s Manesar facility. Maruti accounts for 10-12 per cent of the total sales of Sona Koyo. Though the company is dependent on Maruti for a large chunk of revenues, the clientele of the company includes other big names like Mahindra & Mahindra, Tata Motors, Hyundai, Fiat India, Toyota Kirloskar, General Motors, among others. In today’s statement, Kapur also said the company would set up a dedicated facility to supply parts to Maruti at Gujarat where Maruti plans to invest Rs 4,000 crore on a new manufacturing facility.

Sona Koyo Steering Systems Limited has three subsidiary companies, JTEKT Sona Automotive, Sona Fuji Kiko Automotive and Sona Stampings. The company has shown robust performance in the last three years in both, the topline and the bottomline. The Q1FY13 results had the company’s topline growing by 7.73 per cent and the bottomline by -19.22 per cent. The margins for the company have been significantly under pressure since the last four quarters. Overall, the financials of the company don’t leave a promised invariable likelihood of future profitability in the near term.

Moreover, the shutdown of Maruti’s Manesar plant will show its effect in Q2FY13 and this will most likely be unfavourable. With the company’s production expected to get back to normal by the end of September, sales would definitely be subdued for Sona. With this, though the long-term prospects of the company improve with the Rs 100 crore capex plans, we recommend investors to avoid the stock till the Q2FY13 results announcement.