Sundaram Clayton Ventures into Magnesium Die-Castings

Sundaram Clayton - Latest Results

(in Cr.)
Sep-11
Jun-11
FY10-11
Revenue
250.56
244.14
808.88
Net Profit
16.4
6.01
37.26
EPS
4.32
1.58
9.82
Cash EPS
7.67
4.87
9.82
OPM %
16.36
11.58
8.3
NPM %
6.55
2.46
4.61
Sundaram Clayton - Latest Results

Sundaram Clayton - stock market position

� Quantity Traded
Deliverable Quantity (gross across client level)
% of Deliverable Quantity to Traded Quantity
20954
7321
34.94
 
 
 
Sundaram Clayton - stock market position

Sundaram Clayton Ventures into Magnesium Die-Castings

Sudarshan Venu has been inducted into the company Sundaram Clayton at the top management level. His sister was inducted two years back. This is a wrong strategy on the part of the Indian corporate world.
Sudarshan Venu has been inducted into the company Sundaram Clayton at the top management level. His sister was inducted two years back. This is a wrong strategy on the part of the Indian corporate world. | Source

Sundaram Clayton Ventures into Magnesium Die-Castings


Exports Drive Growth

Sundaram Clayton has produced good results for the quarter ended 30.09.11 as compared to the previous quarter. While revenue has marginally increased, net profit has substantially risen from INR 6.01 crore to INR 16.40 crore (see tables above). Sundaram Clayton is in the business of manufacturing auto parts and equipments. It is in the stable of the famous TVS group of companies. The shares of Sundaram Clayton are traded in the Indian stock markets at Rs.186 now (BSE 10.02.12). The shares of the company are available in both NSE and BSE. The face value of the company’s shares is Rs.5. The paid-up capital of the company is at Rs.18.96 crore. Free reserves amount to Rs.241.32 crore at the end of last year. The company’s Registered Office is located at ‘Jayalakshmi Estates’, 29 Haddows Road, Chennai 600 006. The company’s net profit increased in the Q2 because of higher exports. It was a 73% increase in its net profit compared to the corresponding period of the previous year. Net sales increased by 27% over the corresponding period of the previous year. Exports are mainly made to Europe and North America. The rupee depreciation during this quarter against the dollar also helped the company to post higher profits. Exports increased by 56% during Q2 compared to the corresponding period of the previous year.

Magnesium Die-Casting Will Reduce the Weight of Cars

Sundaram Clayton has entered into the manufacture of magnesium die-casting at its Padi plant in Chennai. So far the company has made die-casting made of aluminium, another light element with atomic number 13 in the periodic table. The capacity is 1000 tonnes per annum. Commercial production is expected to start in 2013. The plant will fulfil the needs of car manufacturers. It will help the car manufacturers to bring out lighter weight cars in future as magnesium is a light metal with atomic number 12 in the periodic table of elements. Magnesium die-casting is a hi-tech area of manufacture. Sundaram Clayton is negotiating with passengers of cars to supply magnesium die-casting to them.

Array of High-Profile Customers

Sundaram Clayton’s Oragadam facility will go on stream in April this year. The capacity of this plant is 12000 tonnes per annum. Civil work has already been completed and installations are going to commence at the plant site. Sundaram Clayton is also exploring opportunities to set up a manufacturing facility in a foreign country for logistics and cost advantage. Exports form 30% of the company’s revenue. The company supplies high quality auto components to famous companies in the world like Daimler, Cummins, Hyundai, Ford, Honda, ZF, Komatsu and Volvo. The economic crisis in European Union and USA has not affected Sundaram Clayton so far. This is because it supplies essential parts to the companies which sell even during recession.

Chase Quality, Money Will Chase You

In business, there is a saying ‘if you chase money, money will elude you, but if you chase quality, money will chase you’. Sundaram Clayton is exactly following this principle for growth. Manufacturing excellence automatically drives growth. This also enhances the ability of the company to serve demanding customers across the globe. This will, in turn, drive business and growth. Sundaram Clayton has secured the Platinum award in the manufacturing excellence award, co-instituted by Frost & Sullivan. Once the magnesium die-casting becomes operational, the weight of the passenger cars using it will be much lower and emission level will also come down, thereby helping environment.

Expansion of Capacity

At present, the company is importing magnesium for its requirements from Europe and Australia. Magnesium is available abundantly in sea water. In the land, it is the central metal ion in chlorophyll, the green coloured matter in all the plants. Magnesium in chlorophyll helps plants to prepare their own food in the form of photosynthesis. Sundaram Clayton is conducting trial runs in its Padi factory using magnesium to make medium-sized parts like cover and castings. Sundaram Clayton has three manufacturing plants at Padi, Hosur and Mahindra World City SEZ. The company at present produces 40000 tonnes per annum. It is looking forward to enhance its capacity to 60000 tonnes per annum in about two years.

Sundaram Clayton - share price trend

 
 
 
Weekly H/L
190
176
Monthly H/L
204
156
52 Weeks H/L
204
129.5
 
( 19 Jan 12 )
( 26 Sep 11 )
Delivery / Var+ELM %
37.12
30.98
Sundaram Clayton - share price trend

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Sundaram Clayton


Auto Industry Is Down In North America and Europe, But Company Not Affected

Its greenfield plant at Oragadam involves an investment of Rs.85 crore. It will have one lakh square feet space. This plant will focus on the domestic market. Sundaram Clayton exports its castings suitable for commercial vehicles of higher tonnage to Volvo and Cummins group. Auto industry and particularly car manufacturing is down in North America and Europe because of the economic slowdown and debt crisis. But this particular class of vehicles have not been affected by the crisis and still doing well. This was the reason for the export increase of Sundaram Clayton.

Bitter Feud In Ambani Family Among Brothers

Sudarshan Venu has joined Sundaram Clayton as an additional director. SudarshanVenu is the son of Venu Srinivasan, Chairman of TVS Motor (another TVS group company) and Mallika Srinivasan of TAFE (Amalgamations group). His elder sister already joined the Sundaram Clayton Board two years back. Sundaram Clayton is planning the succession of next generation right now. After the bitter fight between Mukesh Ambani and Anil Ambani over sharing of the properties of their father Dhirubhai Ambani, the corporate heads are now planning well ahead to avoid such ugly scenes in their families. Dhirubhai Ambani, the richest person in India and owner of Reliance Industries, died at the age of 68 without making proper arrangements for the division of property.

Induction Of Younger Generation

Wipro’s Azim Premji has inducted his son Rishad Premji into the company as Chief Strategy Officer. Bharti Airtel’s Sunil Mittal has appointed his son Shravin in the company’s Netherlands branch. At HCL, Shiv Nadar’s daughter Roshini has been inducted as CEO and director. Kishore Biyani’s Future group has inducted his daughter Ashni as a director. Siddhartha has already been inducted by his father Vijay Mallya into the UB group’s top management team.

Costly Mistake

But all the corporate leaders including TVS group are committing one big mistake. They are inducting their younger generation from their families directly into the top management. These younger generation people have enjoyed life in foreign countries in school and college campuses and are habituated to an atmosphere of pampering and luxury. They have never faced the reality at the production level in India. They have never been subjected to any adverse circumstances or criticism. This will make them very arrogant and take one-sided decisions which may prove harmful to their companies. On the other hand, Bombay Dyeing’s Nusli Wadia was inducted into the firm by his father Naveen Wadia at the bottom production level where he had to move with the workers on equal footing and not from a superior position. This moulded Wadia’s character and decision making. I do not understand why the corporate leaders are not following this sane strategy. They should have control over their sons and daughters and make them to start their careers at the production level. Only after five years and after learning all the intricacies at the operational level should they be inducted into the higher management. A MBA degree at the Harvard is not a sure guarantee that one has assimilated and absorbed all the intricacies of business and industry. A production level training and that too in India alone can guarantee that.

Invest For Medium And Long Term

At the current price of Rs.186, one can buy the shares of Sundaram Clayton for medium and long term holding for decent returns as it belongs to the reputed TVS group in South India. Moreover, once the production of magnesium die-castings starts next year, it will increase the sales turnover and profits of the company to an appreciable extent.

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