Recommendation: Book Profit
CMP: Rs 751 (as of Friday)
Key points
· The performance of Sundaram Clayton is largely dependent on the commercial vehicle (CV) sector performance. The CV sector has been witnessing a slowdown, and any substantial recovery in the second half of FY2008 appears difficult.
· As per the annual report of FY2007, the company has tripled its capital expenditure (capex) plans for FY2008. It proposes to make additional investment of Rs 96 crore in the brakes business and Rs 95 crore in the die-casting business.
· The company has announced the demerger of its air brakes division into a subsidiary. The new entity will be called WABCO-TVS and will be listed on stock exchanges. The demerger would help both the companies to focus on their core areas, and a significant growth is expected in both the businesses in the long term.
· For Q1FY2008 sales grew by 6.1% to Rs 201.4 crore and the profit after tax (PAT) was flat at Rs 18.2 crore.
· The performance in FY2008 could be affected due to the slowdown in the auto sector and due to the higher interest and depreciation costs because of high capex. I advise to book profits on this stock.
