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Report By: Surbhi Bagaria – surbhi@dynamiclevels.com

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 Sona Koyo Steering Systems Ltd- India's largest
manufacturer of steering systems.

Company Overview and Stock Price 3

Sona Koyo’s Product Portfolio 4

Company Financials 5

Peer Comparison 9

Shareholding Pattern 10

Growth Prospects 11

Industry Overview 12

Investment Rationale 13

Page 2 Source: Company, www.dynamiclevels.com

Company’s Overview and Stock Price
COMPANY PROFILE OF SONA KOYO
Sona Koyo Steering Systems Ltd is the flagship company of The Sona
Group, engaged in the manufacture of steering systems for the Date of Incorporation 14-June-1984
passenger car and utility vehicle market in India. Date of Listing 03-Jan-1995
Management
Sona Koyo is the largest manufacturer of steering systems in India, Name Designation
catering to passenger cars, utility vehicles and light commercial Sunjay Kapur Chairman
vehicles. Sona Koyo has technical and financial collaboration with Kiyozumi Kamiki Deputy Managing
JTEKT Corporation, Japan (formally known as Koyo Seiko Co. Ltd.), the Director
Shamsher Singh Director
largest producer of passenger vehicles' steering systems in the world. Mehta
Sona Koyo's customers include major vehicle manufactures in India Ramni Nirula Director
such as Maruti Suzuki, Toyota, Hyundai, Tata Motors, Mahindra & Ravi Bhoothalingam Director
Mahindra, General Motors and Ford. Independently, as well as through Ramesh Suri Director
Prasan Abhaykumar Director
its network of overseas joint-venture partners, it exports high quality Firodia
precision products to USA, Europe and Japan. P K Chadha Director
Kazuhiko Ayabe Director
Hidekazu Omura Director
Rani Kapur Director
Kiran Manohar Executive Vice
Deshmukh Chairman
Registered Office Address
UGF-6, Indra Prakash, 21, Barakhamba
Road,110001,New Delhi, Delhi, India
Website
www.sonakoyosteering.com

Chart Hypothesis: This is the weekly price chart of

SonaKoyo for last 1 yr, in which we can see that it
made a recent high of 75 and has given correction
of 15%. 65 is a good support level.

MARKET CAP
BROAD INDUSTRY Auto Ancillaries PE ratio 34.2 1307.64
(RS. CR.)
.
INDUSTRY Automobiles % Pledge 0 FV/ML 1/1

52 WEEK
GROUP Sona Group NSE CODE SONASTEER 75/37
HIGH/LOW (RS.)

INST.INVESTORS PROMOTERS
LTP (RS.) 67.75 1.44 52.33
(%) (%)

Page 3 Source: Company, www.dynamiclevels.com

 Sona Koyo’s Product Portfolio
1. High performance tilt steering column
2. High performance intermediate shaft for CEPS
3. High performance telescopic shaft for steering column
4. Advanced telescopic I-shaft for CEPS
5. Improved hydraulic power steering gear
6. High performance steering gear for CEPS system
7. Electronically controlled power steering system (ECPS)
8. Advanced column technology for HCV
9. Advanced telescopic I-shaft technology for HCV
10. Advanced steering column with value added features
11. Intermediate shaft with vibration dampener for UV
12. Improved steering column
13. Steer-by-Wire
14. Steering Electronic Control Unit
15. Electric Power Assist Module (EPAM)

Page 4 Source: Company, www.dynamiclevels.com

 Company Financials
Income Statement ( In Cr) June-16 June-15 % Growth
Quarterly Quarterly (YoY)
Net Sales/Income from operations 346.38 372.36 -7%
Other Operating Income 1.89 2.32 -19%
Total Income From Operations 348.27 374.67 -7%
Increase/Decrease in Stocks -3.44 4.63 -174%
Consumption of Raw Materials 223.14 242.04 -8%
Purchase of Traded Goods 4.51 4.37 3%
Employees Cost 43.05 40.55 6%
Depreciation 25.3 24.51 3%
Other Expenses 38.52 39.26 -2%
Total Expenditure 331.08 355.37 -7%
Operating Profit 17.19 19.3 -11%
Other Income 1.51 1.29 17%
P/L Before Int., Excpt. Items & Tax 18.69 20.6 -9%
Interest 7.94 7.4 7%
P/L Before Exceptional Items & Tax 10.75 13.19 -18%
P/L Before Tax 10.75 13.19 -18%
Tax 3.67 4.88 -25%
P/L After Tax from Ordinary Activities 7.08 8.32 -15%
PAT 7.37 8.32 -11%
Minority Interest -2.17 -4.12 -47%
Share Of P/L Of Associates -0.03 -0.05 -40%
Net Profit/(Loss) For the Period 5.17 4.14 25%
Prior Year Adjustments 0.29 --
Equity Share Capital 19.87 19.87 0%
EPS (Rs.) 0.26 0.21 24%

Page 5 Source: Company, www.dynamiclevels.com

Balance Sheet FY-16 FY-15 % Growth
EQUITIES AND LIABILITIES
SHAREHOLDERS FUNDS
Equity Share Capital 399 397.97 0.26%
Equity Share Capital 19.87 19.87 0%
Total Share Capital 19.87 19.87 0%
Reserves and Surplus 327.43 303.55 8%
Total Reserves and Surplus 327.43 303.55 8%
Total Shareholders Funds 347.3 323.42 7%
Minority Interest 111.59 98.6 13%
NON-CURRENT LIABILITIES
Long Term Borrowings 155.88 167.47 -7%
Deferred Tax Liabilities [Net] 33.78 41.64 -19%
Other Long Term Liabilities 0.09 0.14 -36%
Long Term Provisions 7.32 6.78 8%
Total Non-Current Liabilities 197.08 216.03 -9%
CURRENT LIABILITIES
Short Term Borrowings 67.6 42.36 60%
Trade Payables 194.42 192.55 1%
Other Current Liabilities 114.02 120.23 -5%
Short Term Provisions 20.08 19.9 1%
Total Current Liabilities 396.12 375.04 6%
Total Capital And Liabilities 1,052.10 1,013.09 4%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 553.69 546.9 1%
Intangible Assets 45.95 37.25 23%
Capital Work-In-Progress 22.22 49.01 -55%
Intangible Assets Under Development 18.27 14.18 29%
Fixed Assets 640.12 647.34 -1%
Non-Current Investments 0.85 1.18 -28%
Long Term Loans And Advances 12.88 7.19 79%
Other Non-Current Assets 0.45 0.4 13%
Total Non-Current Assets 654.31 656.11 0%
CURRENT ASSETS
Inventories 99.12 100.4 -1%
Trade Receivables 215.26 189.19 14%
Cash And Cash Equivalents 36.29 17.98 102%
Short Term Loans And Advances 25.51 32.24 -21%
Other Current Assets 21.61 17.17 26%
Total Current Assets 397.79 356.98 11%
Total Assets 1,052.10 1,013.09 4%

Page 6 Source: Company, www.dynamiclevels.com

 Ratios FY-16 FY-15 Growth %
PER SHARE RATIOS
Diluted EPS (Rs.) 1.86 1.91 -3%
Cash EPS (Rs.) 7.69 8.19 -6%
Book Value[Excl.RevalReserv]/Share (Rs.) 17.48 16.27 7%
Book Value[Incl.RevalReserv]/Share (Rs.) 17.48 16.27 7%
Revenue From Operations / Share (Rs.) 76.4 78.14 -2%
PBDIT / Share (Rs.) 10.56 11.1 -5%
PBIT / Share (Rs.) 5.59 5.88 -5%
PBT / Share (Rs.) 4 4.31 -7%
Net Profit / Share (Rs.) 2.72 2.97 -8%
NP After MI And SOA / Share (Rs.) 1.86 1.91 -3%
PROFITABILITY RATIOS
PBDIT Margin (%) 13.82 14.2 -3%
PBIT Margin (%) 7.32 7.52 -3%
PBT Margin (%) 5.23 5.51 -5%
Net Profit Margin (%) 3.56 3.79 -6%
NP After MI And SOA Margin (%) 2.43 2.44 0%
Return on Networth / Equity (%) 10.66 11.71 -9%
Return on Capital Employeed (%) 5.64 5.93 -5%
Return On Assets (%) 3.52 3.74 -6%
Long Term Debt / Equity (X) 0.44 0.51 -14%
Total Debt / Equity (X) 0.64 0.64 0%
Asset Turnover Ratio (%) 144.31 153.28 -6%
LIQUIDITY RATIOS
Current Ratio (X) 1 0.95 5%
Quick Ratio (X) 0.75 0.68 10%
Inventory Turnover Ratio (X) 15.32 15.47 -1%
Dividend Payout Ratio (NP) (%) 26.82 34.08 -21%
Dividend Payout Ratio (CP) (%) 7.31 9.12 -20%
Earning Retention Ratio (%) 73.18 65.92 11%
Cash Earning Retention Ratio (%) 92.69 90.88 2%
COVERAGE RATIOS
Interest Coverage Ratio (%) 3.5 3.75 -7%
Interest Coverage Ratio (Post Tax) (%) 2.71 2.89 -6%
VALUATION RATIOS
Enterprise Value (Cr.) 1222.94 1292.1 -5%
EV / Net Operating Revenue (X) 0.8 0.83 -4%
EV / EBITDA (X) 5.83 5.86 -1%
MarketCap / Net Operating Revenue (X) 0.6
Peer Comparison
0.64 -6%
Retention Ratios (%) 73.17 65.91 11%
Price / BV (X) 2.66 3.1 -14%

Page 7 Source: Company, www.dynamiclevels.com

Cash Flow Statement FY-16 FY-15

Net Profit/Loss Before Extraordinary Items And Tax 79.45 85.71

Net CashFlow From Operating Activities 131.47 198.63
Net Cash Used In Investing Activities -78.71 -81.32
Net Cash Used From Financing Activities -34.71 -102.5
Net Inc/Dec In Cash And Cash Equivalents 18.05 14.82

Cash And Cash Equivalents Begin of Year 16.42 1.6

Cash And Cash Equivalents End Of Year 34.47 16.42

Net Profit/Loss Before Extraordinary Items And Tax 79.45 85.71

Page 8 Source: Company, www.dynamiclevels.com

 Peer Comparison:

Comparative Ratio Analysis

COMPANY NAME NPM(%) AVERAGE 3- RONW(%) AVERAGE 3-
YEARS YEARS

Sona Koyo Steer. 3.56 4.38 10.66 14.77

JMT Auto Ltd. -2.87 0.6 0 3.53
The Hi-Tech Gears 4.7 4.46 12.75 11.93
ZF Steering Gear 5.98 5.57 11.33 9.11
Bharat Gears 0.06 -0.27 0.36 0.4

Valuation
COMPANY NAME CURRENT P/E P/BV MCAP/REVENUES
PRICE(RS.)
Sona Koyo Steer. 67.6 36.34 3.87 0.88
JMT Auto Ltd. 26.15 15.57 4.39 0.9
The Hi-Tech Gears 357.25 40.23 7.4 1.49
ZF Steering Gear 1510 53.99 6.12 3.23
Bharat Gears 160.95 519.19 1.77 0.32

Financial Comparision
COMPANY NAME REVENUES 3- YEAR PBDIT (RS 3- YEAR CAGR(%) PAT (RS 3- YEAR
(RS CR.) CAGR(%) CR.) CR.) CAGR(%)
Sona Koyo Steer. 1,518.30 1.31 79.45 2.25 37.05 -0.92
JMT Auto Ltd. 1,467.39 68.39 -30.4 0 -42.21 0
The Hi-Tech Gears 449.97 6.41 34.26 13.16 21.16 9.28
ZF Steering Gear 423.98 10.65 37.86 -8.23 25.37 -0.32
Bharat Gears 397.49 0.41 0.52 -58.67 0.24 -63.57

Proportionate Distribution (%)

Particulars Total ZF
(Rs Cr.) Sona Koyo JMT Auto The Hi-Tech Steering Bharat
Steer. Ltd. Gears Gear Gears
Revenue 4,257.13 35.66% 34.47% 10.57% 9.96% 9.34%
PBDIT 121.69 65.29% -24.98% 28.16% 31.11% 0.43%
PAT 41.61 89.03% -101.43% 50.86% 60.98% 0.58%

Page 9 Source: Company, www.dynamiclevels.com

Shareholding Pattern

Page 10 Source: Company, www.dynamiclevels.com

Growth Prospects:
Financial year 2016 saw the Indian automobile industry maintain
positive growth across all segments. The Passenger Vehicle (PV)
segment, in particular, witnessed high growth of 6.9% during the
year, mainly driven by new launches. Sona Koyo faced the
situation of stagnant sales in the last year caused due to shift in
customer preference for few Car Models which performed
exceptionally well and where the Company didn’t participate.
Participating in many exciting upcoming launches, the Company
is expected to achieve better performance in future years.

Sona Koyo continued to broaden its product portfolio across all

steering systems. During the year, Sona Koyo made new inroads
into the off-highway segments, modifying its internationally
proven Electric Power Assist Module (EPAM) to new product
markets namely the domestic tractor segment, sports vehicles
and special vehicles.

Sona Koyo also continued to build relationships with existing

clients while adding new customers. During the year, the
Company started supplying steering assembly to Eicher Pollaris.
The column division of the Company won business from Tafe and
the work on new product development is progressing well.

The Society of Indian Automobile Manufacturers (SIAM) has

predicted a growth rate of ~6-8% in FY17 for the overall PV
segment. ICRA also expects domestic PV sales to grow by 8.5% -
9.5% in FY17 backed by replacement demand and off-take from
first time buyers. Sona Koyo is now well positioned to grow given
its presence in several upcoming models; new product launches
that will open new market segments and growth in exports.

Page 11 Source: Company, www.dynamiclevels.com

Industry Overview
Overall PV volumes grew by 6.9% to 3.4 mn units, with domestic
sales and exports registering growth of 7.2% to 2.8 mn units and
5.2% to 0.7 mn units, respectively, compared to 3.9% and 4.2% in
FY15. Within the PV segment, passenger cars grew by 7.9% YoY,
posting their highest domestic sales growth rate in 5 years. Low
commodity prices, improved performance in markets like the UK,
the US, Germany and France, coupled with new model launches
and incentive schemes for customers, helped boost growth. The
domestic commercial vehicles (CVs) segment reported 11.5%
growth with medium and heavy commercial vehicles (M&HCVs)
clocking 29.9% and light commercial vehicles (LCVs) growing by a
marginal 0.3%. Domestic three-wheelers posted a growth of 1%
with passenger carriers seeing a step up of 2.1% and goods
carriers declining by 3.6%. The government’s thrust on 'Make in
India', with a view to transform India into a manufacturing and
technology hub, has attracted new foreign direct investment
(FDI) into the automotive sector. The industry has seen
investments from both global and local OEMs with the effect of
building/expanding capacity and research and development
(R&D).

In FY16, India was the fastest-growing economy. The

International Monetary Fund (IMF) has predicted a growth of
7.5% for FY16 and FY17 for India, while it expects the world
economy to grow at 3.2% and 3.5% for FY16 and FY17,
respectively

In India, lower commodity prices and a relatively tight monetary

stance have resulted in a faster-than-expected fall in inflation,
making room for nominal interest rate cuts, According to IMF,
India’s growth will be driven by increase in private consumption,
benefited from lower energy prices, higher real incomes and pick
up in industrial activity followed by a recovery of private
investment. For FY16, the Index of Industrial Production (IIP)
witnessed a growth of 2.4% against a growth of 2.8% in FY15.
Manufacturing, which is the largest segment, grew 2% in FY16
against 2.3% last year. Industrial production in FY17 is expected
to pick up on the back of increased infrastructure spending by
government and improvement in both the consumer goods and
capital goods segments.

Page 12 Source: Company, www.dynamiclevels.com

Investment Rationale:

 Sona Koyo’s plans to invest in future growth and with that objective the Company has invested in a land
bank of 30 acres in Gujarat in order to be closer to the customer as most of the automotive customers
expand in the state of Gujarat. The land is ideally located on main highway SH-7 and is about 12 km from
the Suzuki plant and 6 km from the Honda plant.

 Automotive Mission Plan (AMP) envisages auto component sector to be $150 bn by 2026: Vehicle sales
are expected to touch 66 million units by FY26. To achieve this projection, the auto industry will require
additional investment of Rs 4.5-5.5 trillion. The growth of the automotive market will translate into huge
potential for the auto component sector. According to AMP 2016-26, the auto component sector is
expected to grow at a CAGR of 13% from $38 billion in FY15 to more than $150 billion by 2026.
 PV density expected to become 1.5 times of current vehicle penetration by 2020: India has the largest
population of young people in the world, yet a low vehicle penetration (PV) (32 vehicles per 1,000 people in
2015) makes it one of the world’s most attractive auto makers. Owing to its uniquw demographic dividend
and government initiatives, such as “Make in India’ and ‘Smart Cities’, the Indain Auto industry holds
immense growth potential. According to E&Y analysis, India’s PVs are expected to grow from around 29mn
during 2015 to more than 48 mn vehicles by 2020.

 The government’s thrust on 'Make in India', with a view to transform India into a manufacturing and
technology hub, has attracted new foreign direct investment (FDI) into the automotive sector. The industry
has seen investments from both global and local OEMs with the effect of building/expanding capacity and
research and development (R&D).

 Sustained growth for automotive industry in FY17: SIAM is expecting positive performance by the
automotive industry in FY17, forecasting growth of 6-8% in PV sales. Further, prediction by the Indian
Meteorological Department (IMD) of an above-average monsoon is expected to revive rural demand.
Announcement of the 7th Pay Commission of wage hikes, easing of interest rates and rising disposable
incomes in the hands of individuals will provide further fillip to demand. OEM’s have lined up a slew of new
launches for FY17, which, coupled with lucrative customer incentives, will boost demand. ICRA is expecting
domestic sales to grow by 8.5-9.5%, driven mainly by replacement demand and improved overall economic
environment.

We recommend BUY in Sona Koyo @ 66 with the Target of 80 as Sona Koyo is the largest
manufacturer of steering systems in India, catering to passenger cars, utility vehicles and
light commercial vehicles. Sona Koyo is a multibagger as the price has more than doubled
from recent low of 37 to 76. It has strong track record of generating superior shareholder
returns higher than the benchmark indices.

Page 13 Source: Company, www.dynamiclevels.com

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Page 14 Source: Company, www.dynamiclevels.com