Sundaram Brake Lining Ltd - 350.00 Rs

Established in 1976 as a joint venture with a world famous friction materials manufacturer, Sundaram Brake Lining Ltd (SBLL) is now a fully Indian owned company belonging to reputed TVS group of South India. It is engaged in manufacturing of automotive, non-automotive and industrial friction materials with specialization in asbestos-free brake linings and pads. Infact it enjoys the status of being the first Indian friction material company to introduce asbestos free brake blocks. Its products are extensively used in commercial vehicles, passenger cars, tractors (agricultural) and motor cycles. Besides, it also makes asbestos-free woven clutch facings, disc pads, flexible rolls, and insitu bonded shoes. It has a strong presence in the Indian original equipment market as it provides the logistic support for just-in-time deliveries to ensure zero production stoppage at its customer’s plants. It also services the Indian aftermarket through more than 140 TVS owned wholesaler outlets spread across major towns. On the other hand it derives 30% of total revenue from exports to around 70 countries worldwide. SBLL boasts of catering to the after market needs of international applications like Mercedes Benz, Volvo, Scania, Renault etc. It is also the preferred supplier to some of the well known axle manufacturers as original equipment. Ironically, apart from being an ISO / TS 16949 and ISO-14001 certified, SBLL has the singular distinction of being the first friction material manufacturer in the world to win the coveted Deming application prize for practising Total Quality Management (TQM).

SBLL has four manufacturing plants with two plants dedicated exclusively to produce asbestos-free brake linings and pads. To increase the export revenue, company has established Plant 4 in Mahindra World City - a notified Special Economic Zone (SEZ), last year only. The combined production capacity of all four facilities is 1.2 million brake blocks per month. Notably, company products have been tested to meet European ECE-R90, American FMVSS 121, Australian ADR 35/38, South African SABS 1506 requirements besides the Indian IS 11852. To service the US and Canadian markets instantly and establish a brand recognition, company has a warehouse facility in North America along with a business representative in USA who works closely with the US/Canadian brake re-builders and distributors. In view of changing trends, from drum brake linings to disc brakes for commercial vehicles the company is giving special focus on CV Pad business and in the process has created a wide range of 39 references and are aggressively marketing the same worldwide. It regularly participates in international fairs in North Amercia, Europe, Africa, Middle and Far East. Interestingly, company is also negotiating with various overseas buyers for servicing branded product programmes to ensure further export growth.

With more and more countries banning use of asbestos based friction material products, the future prospects of SBLL, being a pioneer looks promising. The number of countries which uses only asbestos free friction products has now increased from 34 to 37 countries. Secondly, the uptrend in domestic market is expected to continue on back of strong economic as well as industrial growth. However, rising input costs, constant downward pressure on prices by customers, availability of cheaper products and adverse exchange rate fluctuations are few factors putting pressure on the margin front of the company. Hence it is expected to clock a turnover of Rs 190 cr - same as FY07 with marginal decline in net profit to Rs 12.50 cr for FY08. This works out to an EPS of Rs 46 Rs on tiny equity of Rs 2.70 cr. Against its current market cap of 95 cr, SBLL is having huge reserves of Rs 62 cr (BV - Rs 240), Gross Block of Rs 117 cr and low debt equity ratio of 0.65x. Moreover company is having an excellent track record of uninterrupted dividend payment for last 15 years and at CMP the dividend yield comes to nearly 4%. Considering its 52 week H/L as Rs 598/320, this is one of the safer bet in the current all time high market. Investors are recommended to buy at current levels, as scrip can appreciate 50% in 12~15 months.

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