This Tata Steel-Backed Stock Is Axis Securities’ Pick Of The Week; Here’s Why

Steel Strips Wheels Limited (SSWL) is a pioneer in the design and production of automotive wheels, specializing in steel and alloy designs. With production sites at Dappar (Punjab), Oragadam (Chennai), Jamshedpur (Jharkhand), Mehsana (Gujarat), and Saraikela (Jharkhand), the firm is headquartered in Chandigarh. As a public shareholder under the Bodies Corporate segment, Tata Steel held 10,869,720 shares of Steel Strips Wheels which is 6.9% of the total paid-up share capital of SSWL during Q3FY24. The brokerage firm Axis Securities has recommended to buy the stock as a pick of the week for a target price of Rs 245 from the current market price of Rs 221 which implies a potential upside of 10%.

Investment Rationale To Buy Steel Strips Wheels According to Axis Securities

Outlook on EBITDA per wheel: SSWL has improved EBITDA/wheel to ~Rs 254 in Q3FY24 from ~Rs 248 in Q2FY24. The management is confident to further improve margins on the back of product premiumization, led by increased alloy wheel business, exports, electric motor hub wheels and AL knuckles in the sales mix. The management aims to maintain medium term EBITDA/wheel margin between ~Rs 250-260 levels on the back of operational efficiencies, being partly offset by startup costs at the AMW facility.

Incremental Capex for AMW (Steel) and Alloy Wheel Capacity: The company will be raising the alloy wheel capacity to 4.8 Mn wheels by Q3FY25 (from 3 Mn in FY23 and 3.6 Mn in FY24). The total Capex for FY24 is ~Rs 470 Cr (include ~Rs 138 Cr for the AMW plant and ~Rs 190 Cr for brownfield Capex for the expansion of the alloy wheel business in Mehsana, Gujarat). The AMW plant will be a wholly-owned subsidiary of SSWL and commercial production is expected to start from H2FY25 with 25k-30k CV wheels per month generating additional revenue of ~Rs 60 Cr in FY25.

EV Business: As per the management, the company has a 60% market share for electric hub-motor supplies to 2W EV OEMs and has a 60-65% wallet share of business from Tata Motors and MnM each for its EV portfolio. The management expects EV business is expected to grow at 25-30% in FY25 on the back of the continuation of the FAME subsidy.

Q3FY24 operational performance: Overall blended sales volume (steel + alloy) stood at 4.6 Mn units, up 13% YoY and revenues were up ~18% YoY. Exports revenue grew by 179% YoY to Rs 174 Cr during the quarter.

Steel Strips Wheels Share Price Target

"We continue to factor in total wheel volumes at 1.95 Cr and 2.05 Cr units in FY24/25 respectively. With alloy wheels and export share increasing and the introduction of a new product line- Aluminium Steering Knuckles, we estimate the company's EBITDA/PAT to grow at 11%/17% CAGR over FY23-26. We recommend a BUY on the stock with a target price of Rs 245/share, implying an upside of 10% from the CMP 221," said Axis Securities in a note.

Steel Strips Wheels Financials

The company reported a net sales of Rs 1,110.30 crore in the December 2023 quarter up 18.31% from Rs. 938.44 crore in the December 2022 quarter. Its net profit increased 35.75% from Rs. 43.77 crore in Q3FY23 to Rs. 59.41 crore in Q3FY24. EBITDA reached Rs. 118.37 crore up 7.69% from Rs. 109.92 crore in the same quarter of the previous fiscal.

Disclaimer

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