Munjal Showa Limited is a company established in the year 1987, as a result of technical and financial collaboration between Hero Group and Showa Corporation, Japan. Showa Corporation, Japan is a market leader in manufacturing shock absorbers for automobiles and motorcycles.

Munjal Group holds 39 percent stake followed by Showa Corporation, which has 26 per cent stake in the Munjal Showa Limited.

Munjal Showa Limited, operates as an ancillary and manufactures auto components for the two- wheeler and four-wheeler industry. The company designs and manufactures front forks, shock absorbers, struts, gas springs and window balancers for sale in domestic market. Munjal Showa Limited is one of the largest suppliers of shock absorbers to major auto giants in India, Japan, Germany, the United States and the United Kingdom, amongst other developed markets.

The company has three manufacturing plants, one at Gurgaon, at Manesar and new plant at Haridwar. The manufacturing plant is spread over an area of 24075 sq mt in the industrial area of Gurgaon, Haryana, on the outskirts of the National Capital Territory of Delhi, India. The Manesar plant was set up in the year 2005. It was installed to diversify and upgrade its product profile.

The New Plant at Haridwar, Uttarkhand became operational in the year 2009. It has an initial installed capacity of 50 lacs shock absorbers per year. The plant has been established to cater to the needs and also to ensure the on time delivery to M/s. Hero Honda Motors Limited. It is installed to avail the concessional tax structure and incentives. It has strengthened Company's position in the industry and reduced cycle-time for a development of new models. The plant is built with state of art technology and is eco friendly with lean manufacturing facility to ensure and achieve optimum efficiency and output levels. The machine layout will ensure least human handling and single flow system connected through conveyors. A capex to the tune of Rs 175 Crore is funded by debt and internal accruals. All the three plants combined, has sufficient capacity to meet present customers as well as some new customers,' adding that the company at present makes 70,000 units of the components every day and around 2.5 crore pieces per annum. It expects to grow its capacity by six to seven percent every year.

The company is investing an additional Rs 15-20 crore in the Gurgaon and Manesar plants, keeping future demand in mind. The effort of the company is to become self-reliant in terms of testing and cutting down its dependence on its Japanese partner. The company is proceeding in design as well, but it will take some time and requires some heavy investment.

INDUSTRY ACCOLADES:

The Accolades awarded to the auto ancillary company are the symbol of reliability and quality. The company has been awarded with awards which include QS9000 and ISO 9001 and ISO 9002 certification. The National Safety Award in the year 1992. The British Safety Council's National Safety Award in 1996. ISO14001 Certification for efficient handling of effluents in the year 2001. Assigned API+ rating for 60 million commercial paper programme by CRISIL.

FOREIGN EXCHANGE:

The company is not directly into exports. The company presently caters to 100 percent requirement of Shock Absorbers, Struts and Window Balancers for export models of Hero Honda Motors Limited, Honda Siel Cars Limited, Maruti Suzuki India Limited and Honda Motorcycles and Scooters India Private Limited.

The Foreign Exchange earnings during the year 2008-09 were Rs. 3,077,123/- as compared to 16,83,229/- during the previous year
2007-08.

TECHNOLOGY:

The company enjoy the benefits of complete research and development support from Showa Corporation, Japan. A team of highly qualified Japanese technical advisers work in collaboration with the trained professionals in India to ensure proper implementation of procedures and practices. The main objective of the company is to develop products of supreme technical quality, while keeping the costs to a minimum.

During the year 2009, the company reported sales volume growth by 17.67 percent in the number of units of shock absorbers as compared to the previous year'2008. The sales volume of the struts and window balancer declined by 21.15 percent and 14.54 percent respectively in the year 2009 as compared to the previous year 2008.

The total income of the company reported Y-o-Y increase of 10.7% in Q2FY10 at Rs. 249.82 crore as against to Rs. 225.74 crore in the same quarter, previous year. The operating profit posted Y-o-Y decline of 14.5% at Rs. 10.31cr in Q2FY10 as against Rs. 12.06 cr in the Q2FY09 as the raw material cost increased by 10% to Rs. 188.27 cr in Q2FY10. During the quarter ended September'2009, the company posted Y-o-Y net loss of 12% at Rs. 2.92 crore as against net profit of Rs. 3.32 crore in same quarter previous year as the interest cost increased from Rs. 1.01cr in Q2FY09 to Rs. 2.88 cr in Q2FY10.

At present, only two domestic players, Gabriel India (GIL) and Munjal Showa, dominate the industry. Both account for over 80 per cent of the total industry volumes.

Munjal Showa products serve as original equipment to a wide range of Maruti Suzuki upper end cars and export models, Honda City car, complete range of Hero Honda Motorcycles, Kawasaki Bajaj Motorcycles, Kinetic Scooters and Hero range of mini-motorcycles and mopeds and Hero Motorcycles and Scooters India(Pvt) Limited. Whereas Gabriel India's client base include Hyundai, General Motors, FIAT, Maruti Suzuki, Mahindra Renault, Tata Motors, Ford, Honda, Hindustan Motors. Munjal Showa commands a market share of 60 per cent in two-wheeler shock absorbers and 8 per cent in the passenger cars segment. With Gabriel India has a huge presence in the passenger cars segment and replacement market, Munjal Showa is a key OEM player for two-wheelers.

The fortunes of the Auto component industry are dependent on the fortunes of the auto industry. As per Indian Suppliers' report, The automotive sector in India contributes to 5% of the nation's GDP and 17% of the indirect taxes as a result of which the government last year charted a 10-year blueprint for the sector's growth. According to the Automotive Mission Plan(AMP) 2016 released to make Indian auto industry a destination of choice in the world to design and manufacture of automobiles and auto components with an output reaching $145 billion accounting for more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016. Hundred per cent FDI (Foreign Direct Investment) is allowed to encourage the international players to enter the Indian markets.

COMPANY:

1. Hero Honda being the parent company accounts for 78 per cent of the total sales volume of Munjal Showa.

2. Munjal Showa has 90 percent exposure to two-wheelers and 10 percent to cars.

3. The new plant at Haridwar is operational and is opened to cater to the needs of the Hero Honda new facilities.

4. Maruti Suzuki, market leader in passenger cars is a major customer and accounts for 8 per cent. Of total sales.

5. The company is the OEM supplier of shock absorber to the leading two-wheeler and four-wheeler manufacturers which include Hero Honda, and Honda Motorcycle and Scooters.

6. Munjal Showa has been awarded with many accolades and has earned its name in the auto ancillary manufacturing segment by providing quality, commitment and competence.

FUNDAMENTALS:

1. The three plants combined expect to grow its capacity by 6-7% every year will help company improve margins.

2. The company has prospects to give higher dividend in the future.

3. Debt Equity ratio stands at 0.43, lowest in the industry.

4. The downside risk is very limited because 80 percent of its sales volume come from its parent company, Hero Honda.