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Buy Enkei Wheels India Ltd For Target Rs. 657 - Sushil Finance

Radical shift from Steel to Alloy wheels Enkei Wheels

(India) Ltd [EWIL] is a leading manufacturer and supplier of aluminium wheels in India. Most major OEM’s (Original Equipment Manufacturers) have shifted from steel wheels to alloy wheels due to the metal’s durability, superior performance, and considerably lesser weight. It is also found that alloy wheels dissipate heat much better than steel wheels, thereby, increasing the life of the tire. EWIL, being a leading manufacturer and supplier of aluminium wheels in India, is a beneficiary to this change.

Capacity expansion leading to robust top-line growth

The current production capacity for 2-wheeler wheels is 120,000 pieces per month, and for 4-wheeler wheels is 90,000 pieces per month. The company has expanded its capacity by inaugurating its new MAC line production (MAC5) for an additional 40,000 4-wheeler wheels, in May, 2022. EWIL is further supplementing this by commencing an additional paint line, which is expected to be ready by the end of CY22. The incremental capex is likely to boost the volume growth resulting in an increase in top-line by ~75% from CY22 until CY24.

Government Impetus to Automotive Sector accentuating growth of Auto Ancillary companies

The Government of India has set up National Automotive Testing and R&D Infrastructure Project (NATRIP), Automotive Mission Plan (AMP – 26), and the Production Linked Incentive (PLI) scheme with a clear focus to accelerate manufacturing, demand, and growth in the automobile industry in India. Since the auto ancillary industry is intertwined with the automobile sector, the favourable outlook would boost growth for auto ancillary companies like EWIL.

OUTLOOK & VALUATION

We have forecasted a revenue growth of 14.9% CAGR until CY24E where we expect revenue at Rs.789.6 Cr, EBITDA at Rs.76.5 Cr at an EBITDA margin of 9.7% and Adjusted PAT of Rs.36.7 Cr. Given the push towards capacity expansion resulting in a strong revenue outlook, we estimate CY24E EPS at Rs.20.5, and assign a PE multiple of 32x to arrive at a target price of Rs.657, which is an upside of ~40.3% from its last price of Rs.468. We re-instate coverage on Enkei Wheels (India) Ltd. with a BUY rating, over an investment horizon of 18-24 months.

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