Sundaram Clayton Research Report By HDFC Sec

Steady performer

We hosted the management of Sundaram Clayton Ltd (SCL) for a series of investor meetings. SCL has a long standing track record of delivering high quality components to a reputed base of customers. SCL currently holds a 57.4% stake in TVS Motor, which is valued at Rs 67.3bn. While SCL’s earnings growth may accelerate with a cyclical demand upturn, its asset heavy business would restrict ROCE expansion beyond early double digits. Thus, valuation accorded to the core business is unlikely to scale above 10-12x forward earnings. Excluding the base business valuation (~15-20% of EV), implied holdco discount for its stake in TVS is significantly high at ~55-58%.

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