Inter Groclin Auto covers market

For Zbigniew Drzymała, the president of Inter Groclin Auto (IGA), the road is clear for continuing the runaway success of his car components factory, even though European auto sales are set to downshift in coming years while Polish car buyers are stuck in reverse. IGA invested zł. 43 million ($10.4 million) in technology last year, but Drzymała plans to halt the firm's expansion in Poland and to take advantage of the tax breaks and relatively low labor costs in Ukraine with a new factory under construction as of last week. The €10 million car-seat and seat-cover plant is being built in the Uzgorod special economic zone and is slated for completion in 2003. "In the next few years we intend to increase our capacity and to raise our investment in improving the quality of our production facilities," Drzymała said, referring to the Ukrainian factory project. While declining economic growth in Western Europe is deflating car sales, which are expected to decline by about 6% this year, analysts predict that the number of cars sold in Russia will double by 2005, according to a report by U.S. rating agency Standard & Poor's. The new factory will bring IGA closer to the biggest growth market for automotive products in the region.

"This is to be a big plant employing around 2,000 people, which will certainly lower IGA's costs and improve its competitiveness on European markets," Drzymała said. Since IGA was founded 25 years ago, the car-seat exporter has become one of Europe's largest auto component manufacturers and a darling of the Warsaw Stock Exchange (WSE). It continues to attract investors against the background of the WSE's diminishing key WIG stock index during the past two years. Analysts predict profit growth to accelerate this year, thanks to further investment and more aggressive sales. "This is one of the better firms on the WSE in terms of results and the effectiveness of its work," said Piotr Wiśniewski, an analyst at Amerbank. "In 2001 its financial growth was among the highest on the WSE." Earlier this year, IGA shareholders approved an issue of 1 million new shares to finance the construction of the Ukrainian factory. The move decreases their dependence on Drzymała, the company's main decision maker who controls 82.8% of IGA's stock, and lowers the firm's risk for institutional investors. "The new share issue will be sold without problems since the company has ideas for developing its business," Wiśniewski said.

The key factor in attracting new investment is IGA's blossoming financial results in the past two years and its prospects for continued financial improvement perceived by analysts. Last year the company more than doubled its annual sales to zł. 303 million ($74 million) from zł. 159 million ($39 million) and boosted its profit to zł. 19 million ($4.6 million) from zł. 7 million ($1.7 million). "(IGA's) official prognosis was to increase its sales to zł. 420 million ($102 million), (which) is attainable and even (possible) to exceed," Wiśniewski said. "After the first two quarters, sales exceeded zł. 230 million ($56 million) - a clear improvement on last year. So this year will also see revenue growth." He estimated that this year IGA's profit would easily exceed zł. 20 million ($4.87 million)." Seat covers represent 96.7% of sales for IGA, which also produces car seats and children's car seats for automakers, including Volvo, Renault, Volkswagen and Mitsubishi. IGA's principal trading partners are in Belgium, Sweden, France, Germany and the Netherlands. "The fact that we produce car-seat covers for the world's biggest car producers … allows the company to systematically increase its sales revenues and investment outlays," Drzymała said. The company first opened its doors as a furniture factory in 1978, but its business did not begin to take off until 1991, when it was taken over by Drzymała and his partner Michael Wahnschaffe. Drzymała bought out his partner three years later, a move that allowed him to transform IGA into a joint stock company in 1997. A market flotation followed in 1998. The company employs 3,137 people, making it one of the largest employers in western Poland.