Since new sales of passenger cars and commercial vehicles (CV) have moderated, prospects for companies with exposure to other segments of the auto industry or those present in other segments tend to be brighter.

One such company is Wheels India, a leading supplier of steel wheels for on-road and off-road vehicles. Although the company derives about 50 per cent of its revenues from the sale of steel wheels for CV and cars, it is a leading supplier of wheels for tractors and mining vehicles too.

Besides, it has diversified into making air suspension systems for buses, trucks and trailers, which unlike wheels have a higher service and replacement market. It also makes steel structural components for power plants.

Together, these currently bring in about 5-7 per cent of the revenues. At the current market price of Rs 314, the stock trades at a PE of just nine times its trailing 12-month earnings.

Despite the moderation witnessed in the domestic auto volumes, the company has put up a good second quarter performance.

For the three months ended September 2011, net sales have grown by 19 per cent to Rs 496 crore and net profits have more than doubled to about Rs 11 crore, over the same quarter last year.

A healthy outlook for tractor sales (60 per cent market share in tractor wheel supplies) and a robust export demand for mining wheels imply that the company will continue to show strong growth. This makes a good case for investment in the Wheels India stock.

With 34 clients globally and supplying to markets such as Japan, Korea, North America, Europe, Brazil, China and Indonesia, the company has been a beneficiary of the strong demand for large mining trucks witnessed in these export markets.

Catering mainly to the mining and construction equipment industry abroad, Wheels India derives about 15-20 per cent of revenues from exports. Going forward, based on projections from customers, the company expects exports to continue to drive topline growth in the next 12-18 months.

This market, along with tractors, air suspension systems and power plant parts also brings in superior margins when compared with ‘mass market' products such as CV and passenger car wheels.

While these factors are expected to keep profitability intact in the near term, the company will fire on all cylinders once the domestic auto markets regain momentum.

With the interest rates expected to peak out soon and demand for freight holding up, CV sales will gain traction sooner than later.

Also, the company has been roped in for many of the new passenger car launches and so, volume growth on this front will not be difficult to come by. It has about 45-50 per cent market share in both these segments.

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