Sona Koyo Steering Systems (SONA) Q4FY11 operating margins at 9.3% were below our estimate. However, higher other income and a lower tax rate helped the company post a profit of Rs123mn as against our estimate of Rs94mn. Revenues grew 20.7% YoY to Rs2.9bn and were in line with estimate. FY11 consolidated profit at Rs446mn is 19% higher than the standalone bottomline.

Revenues on expected lines: The revenues continued to grow, following the high growth trajectory of domestic passenger vehicle industry. Production volumes during the quarter were 25.7% higher. SONA’s domestic revenues were up 18.9% to Rs2.8bn. Exports were 60% higher at Rs163mn. Overall revenues were up 20.7% to Rs2.9bn.

Margins below estimates: EBITDA margins during the quarter were impacted due to year end provisioning related to employee benefits. Employee cost jumped 20% QoQ and 50% YoY. As a result margins contracted 80bps to
9.3% as against our estimate of 9.9%. However, higher other income and a lower tax rate boosted net profits. Adjusted profits at Rs123mn was higher than our estimate of Rs94mn.

Consolidated profit 19% higher: During the year SONA’s two key subsidiaries Sona Fuji Kiko and JTEKT Sona commenced operations. A part of standalone business to key customers such as Maruti Suzuki has been transferred to these subsidiaries. Consolidated revenues in FY11 have grown by 41% as compared to 21% growth on standalone basis. Consolidated profit for the year at Rs446mn is 19% higher than standalone.

Outlook: Considering the growth in the Indian passenger car industry we have increased our FY12 topline estimate by 14% while maintaining our margin estimates. Our earnings estimate for FY12 is increased by 23% to Rs2. We are introducing FY13 earnings estimate of Rs2.5.