>SONA KOYO (IDFC SSKI)

HIGHLIGHTS OF Q4FY09 RESULTS

• Sona Koyo’s Q4FY09 performance was better than our estimates on account of a better than expected topline growth.

• Net sales for the quarter were ahead of estimates at Rs1.9bn (we saw Rs1.7bn) primarily on account of a strong ramp up in the domestic business. The domestic business grew 37%qoq and 2.5%yoy to Rs1.8bn (we saw Rs1.5bn). Exports, however declined 29%yoy to Rs123mn (we saw Rs178mn).

• The company received compensation for rising raw material costs of the previous quarter (i.e. Q3FY09) in Q4FY09 (a lag of a quarter) from some of its key clients including Maruti Suzuki and M&M and hence its raw material costs (as a % to sales) declined almost 600bps qoq to about 81.5%. Further, driven by aggressive cost rationalization measures (including voluntary compensation cuts taken by the employees) taken by the company, the company was able to improve its operating margins to about 5.3% in the quarter (we saw 4.3%) from an operating loss of Rs94mn in Q3FY09.

• Adjusted for the forex loss, the company posted a loss for the quarter of about Rs46mn (we saw loss of Rs71mn) against a loss of Rs165mn in Q3FY09.

• For FY09, net sales were marginally up 1.4%yoy to Rs6.9bn. Substantial margin erosion (700bps yoy) to 2.3% and a high interest burden at Rs317mn (against Rs118mn in FY08) led to loss of Rs275mn (PAT of Rs230mn in FY08) for FY09.

• Other Key highlights:

• Localisation for CEPS expected to reach about 68% by Jan2010 from 40% currently which would likely help boost margins in FY11.
• Most of the new business including that from Maruti’s Wagon R and the new Swift, Toyota EFC and the Nissan business would be under the joint venture JTEKT Sona Automotive (as all the new designs would be developed by JTEKT) to whom Sona Koyo will supply some major components.
• The capex requirement for the next couple of years is going to be minimal and would primarily be investments for balancing equipments.

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