IGI Logo

Steel Strips Wheels Limited (SSWL) designs and manufactures automotive steel wheels for Two/Three wheelers, Passenger Vehicles, Commercial vehicles and Off the Road Vehicles. It offers a range of diameters, widths and finishes, which can be modified as per application and needs of customer. Headquartered in Chandigarh, SSWL has total manufacturing capacity of ~23 mn wheels. The Company has technology collaboration with Ring Tech Co. Ltd (Sumitomo Group), Japan and Kalink, Korea (one of the top 10 alloy manufacturers globally).

Key Investment Rationales

Diversified portfolio reduces earning volatility:

Though SSWL deals only in one product, Steel Wheel rims, it caters to all auto segments and most of the clients in the segment which diversify their revenue streams. This helps the company to beat the cyclicality of any particular segment. SSWL has not seen a single year of revenue decline in last 20 years (except in the span of Covid-19). This was despite the fact that CV volumes de-grew by 10% and 16% during FY13 and FY14, tractor volume declining by 13% and 11% during FY15 and FY16 and PV Volumes stagnating between FY12-FY15.

High margin alloy wheels to spur next round of growth: In order to take advantage of fast-growing luxury car segment and increasing usage of Alloy wheels, SSWL has set up a capacity of 3 mn alloy wheels at Gujarat (expected to scale up to 4 mn wheels in 7-8 months). This facility has a potential of clocking INR 16 bn revenues at 100% utilization. Alloy wheels offer better margin (~500 bps higher than steel wheels). Within 70 km vicinity of company's plant, Suzuki, Ford and Tata have their manufacturing facilities, large part of their requirement is imported. SSWL can easily cater to this demand with minimum logistics cost. SSWL started alloy wheels business in FY19 and gained market share from 2.9% in FY19 to 33% in FY22. The company is successfully able to cross sell alloy wheels to existing clients, we expect contribution of alloy wheels to push volume and margins.

Burgeoning exports to improve volume and margins further in medium term:

In exports, SSWL supplies to major OEMs like BMW, Audi, PSA, JLR among others. It has recently cleared major audits from two large global PV OEMs. The company also supplies to the aftermarket in the USA and Europe. SSWL is in advanced stages of discussion to sign long term contracts with major OEMs and its alloy wheels are also in testing phase with a few global OEMs.

Outlook & Valuation

SSWL has graduated from merely being a component supplier to collaborate with OEMs from the concept stage to improve the aesthetics of the wheel. While steel wheel business is expected to grow steadily, CV and PV alloy wheel segment provides visibility of higher growth. With multiple levers in place both for volume growth and margin expansion, Revenue/EBITDA /PAT are expected to grow at a CAGR of 11.6%/13.7%/27.3% between FY22-24E. At CMP of INR 828, SSWL is trading at a 7.8x it's FY24E earnings. We have valued stock at 12x FY24E earnings and recommend a BUY with a price target of INR 1277.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at  www.aretesecurities.com
SEBI Registration number is INM000012740

Above views are of the author and not of the website kindly read disclaimer