High-margin products fuel Sundram Fastener's growth

In a highly competitive auto ancillary segment it is tough for a company to enjoy pricing power continuously. However, Sundram Fastener, India's largest fastener manufacturer, has done so. High realisations and increasing share of superior margin products have enabled the Chennai-based firm to achieve a return on equity (RoE) of 21.84% in FY16, outstripping the industry RoE by nearly 2.2 times. It has adopted a three-pronged exercise to boost margins.

First, it increased share of business from higher margin products such as hub, shaft, powdered metal components, hot and cold forged products and pump assemblies with margins of 14-22% compared with conventional fastener business with 9-12% margins.

Secondly, it has consistently been increasing the spares and tool expenses of which significant ones are tooling expenses on the new product development. This provides good visibility of revenues from new product development and better gross margins.

Lastly, the company has been consistently increasing export revenues.Export business contributed nearly 30% of the total revenues in FY16.

Sundram's outperformance is likely to continue due to more value-added products, improving market share and higher content per vehicle. Analysts expect domestic and export business to grow 13% and 15%, respectively for the next fiscal year.

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