Sona Koyo is the largest steering system manufacturer for the passenger cars and utility vehicles. It has got tie ups with several large auto companies. They make steering systems alone for Tata Nano as well. If auto companies are doing so well in the market recently then even auto ancillary will be doing extremely well and Sona Koyo being largest steering wheels manufacturer is bound to do good. Their financial results are speaking volumes about the company.

Financial Health

Sona Koyo posted a revenue of 216cr (15% YoY) and net profit of 5.5cr (532% YoY) in Q1 FY11 and revenues of 251cr (25.5% YoY) and net profit of 7.5cr (115% YoY). If you look at these kind of figures, you’ll notice what kind of growth the company has been showing. Since auto companies are going to continue to do well next year, we can expect a lot of upmove in Sona Koyo as well.

Stock Price Analysis

Currently the stock is trading around 20 with a market capital of 400cr. Comparing the market capital with FY10 earnings, the P/E is coming close to 19. However we are going to see much higher earnings in FY11. If we assume that the stock maintains the current profit of 13cr in the next 2 quarters combined, we can see earnings of 26cr which according to current P/E should easily take the price to 26. However this company performs better in the second half of the Fiscal, so we can bet on revenues close to 30cr, which should drag the stock close to 30 odd levels. I give a buy recommendation on Sona Koyo from a medium term view.

Buy Sona Koyo with targets of 30.

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