Jackey’s Column     

Published: Jan 15, 2023
Updated: Jan 15, 2023

Stock Analysis: SML Isuzu

A remarketable turnaround story in the making

SML Isuzu (formerly Swaraj Mazda Ltd) was established in 1984-85 as a joint venture of Punjab Tractor Ltd, Mazda Motor Corporation, Japan and Sumitomo Corporation, Japan. In 2009, Sumitomo Corporation acquired the entire stake of Punjab Tractors. Subsequently, in 2011, Swaraj Mazda was rechristened as SML Isuzu.

The company manufactures and markets commercial vehicles such as buses and trucks, and special vehicles. Its buses include Cosmo AC cabs, executive buses, standard school buses, S7 school buses, semi low-floor bus, standard staff buses, bus chassis and the S7 complete series. The company’s trucks include Cosmo, Sartaj HG72, Prestige, Supreme, Super, Samrat, Super 12.9 XM, Samrat 21 and Samrat HD 19. Its special application vehicles consist of standard ambulances, cardiac AC ambulances, tippers, dumper placers, troop carriers, prison vans, dual cab trucks, closed vans, recovery vans and refrigerated vans.

CMP: 812
Buying range: 750-850
Targets: 1,100-1,400-1,575
Timeframe: 2-2.5 years

HEROIC HISTORY

If we take a brief look at the journey of SML Isuzu, in just 10 years of its establishment, the company was declared a sick company in 1994 (mostly due to the rupee’s devaluation between 1991 and 1993). However, the company turned around in 3 years and ceased to be a sick company in 1997. After completely wiping off all its accumulated losses in 1998, it made a flourishing comeback and became a dividend- paying company in 2000. It has continued to pay good and consistent dividends between 2000 and 2019.

However, the Pandemic Covid-19 administered a disastrous blow for the CV industry. During the Pandemic, the bus segment remained most compacted given the continued aversion of public transport with schools operating online for a major part of the Covid-19 period and many corporates continuing to encourage employees to work from home. Thus both the school and staff transportation segments were less active. Moreover the tourist segment night service and route permit bus segment also witnessed very low occupancy.

Little wonder SML Isusu’s sales slided from Rs. 1409 crore in the fiscal 2019 to Rs. 1154 crore in the fiscal 2020 and further to Rs. 591 crore in the fiscal 2021 plunging the company into the red with operating profit slumping from Rs. 110 crore in the fiscal 2017 to a los sof Rs. 69 crore in the fiscal 2021 and the net profit nosediving from a profit of Rs. 63 crore in 2017 to a net loss of Rs. 733 crore in the fiscal 2021.

However things started changing from the second half of the fiscal 2021-22 with the decline in the impact of Covid-19. The domestic CV industry entered the path of a recovery. During the fiscal 2022 the CV industry achieved sales of 7,16,600 vehicles, showing a 26per cent jump over that in the fiscal 2020-21, medium and heavy commercial vehicle truck segment shot up 49.2 per cent to 2,28,800 and light CVs truck segment moved up 15.23 per cent to 4.56 per cent. The pack of recovery picked up in the fiscal year so far. During the first half of 2023, the sales turnover of SML Isuzu amounted to Rs. 64,266 crore as compared to Rs. 25,700 crore in the first half of the fiscal 2020 with the profit at net level shooting up from Rs. 3398 crore in the first half 2020 to Rs. 8759 crore in the first half of this year.

TOP BRASS

In May 2021, there was a change in the top management. Mr. Junya Yamanishi replaced Mr. Yugo Hashimoto who resigned. Under the leadership of Mr Yamanishi’s in June 2022, the company decided to go for mass production – a positive indication of the company’s confidence in what it wants to achieve.

FACT SHEET

Close monitoring of the sales figures from August 2022 and the figures from August-December shows improvement and conveys the underlying message and commitment of the management and its sales force. The company’s distributors are also happy about how they were treated during the tough times of Covid when there were hardly any sales in the bus segment. SML Isuzu has been able to keep its distributors and customers happy during tough times. Now, when the times are changing, they are changing for the good. The recent December sales show that the company’s sales figures more than doubled. The stock was up 20% on January 2, 2022.