BUY OR SELL-Can Martinrea keep its rally amid GM bankruptcy?

By R. Manikandan and Bhaswati Mukhopadhyay

BANGALORE, June 4 (Reuters) - Shares of Canadian auto parts maker Martinrea International Inc have more than doubled over the last six months on hopes the worst may be over for the auto industry and sales may start to pick up later in the year.

The stock, which had traded as high as C$12.72 in early 2008, slumped to low of C$1.51 in December as the economic downturn weighed on the auto industry, but it has rebounded since as investors 'realize the outcome may not be as disastrous'.

Martinrea, which makes metal parts and fluid management systems for the automotive sector, gets about 80 percent of its revenue from the Detroit's Big 3.The company has operations in Canada, Mexico, Europe and the United States.

Most analysts feel the bankruptcies of General Motors and Chrysler do not indicate an end of opportunities for Martinrea.

Analysts also expect light vehicle production volumes to rebound in the second half of the year, and that would help the company to weather the downturn.

However, one analyst said the bankruptcies of the auto majors will hurt Martinrea in the near term.

So, does the stock provide a good entry point for investors?



NOT END OF ROAD

The bankruptcy of GM, Martinrea's largest customer, does not mean it will stop producing cars, Marvin Wolff of Paradigm Capital Inc said.

'So this is not a case where the industry is being shut down.'

Production levels have fallen, but 'you have probably also seen the worst in production,' Wolff said. He expects Martinrea's revenue to improve from now on.

Some analysts said Martinrea has availed of Canada's Export Development Corp's expanded receivables insurance program, which should keep it largely protected.

'Martinrea has a really good opportunity to grow in the coming years from some of the businesses it has acquired,' said analyst David Tyerman of Genuity Capital Markets, who has a 'buy' rating on the stock.

Recently, the company acquired several assets from auto parts maker SKD Group.



MARGINS PRESSURE SEEN

'I think Martinrea is going to lose money in the second and the third quarters,' analyst Michael Willemse of CIBC World Markets said.

Exposure to Detroit's Big 3 is going to hurt the company's sales over the next couple of years, which would probably lead to margins pressure, said Willemse, who rates the stock 'sector underperformer.'

Higher fuel prices may also hurt sales of SUVs and pick-up trucks, impacting Martinrea, he added.

Shares of Martinrea were up 6 Canadian cents at C$4.82 in afternoon trade on the Toronto Stock Exchange.

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