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ABB POWER PRODUCTS

We are positive on ABB’s which is leveraging an industry leading installed base, footprint and expertise aided by a) Power supply evolution that is shifting from centralized conventional to a mix of bulk and distribution renewable b) Increasing electrifications of transport and Industry c) EV charging creating new demands patterns d) digitalization across value chain resulting in demand for their products and services e) proposed allocation of Rs 3.05 lakh crore in Union Budget 2021‐22 for the power distribution, to be released over five years. The company is well placed with its advanced services and innovative O&M strategies. Currently, ABB is focusing towards co‐creating pioneering technologies and digital solutions with customers and partners.

ABB’s agile and resilient customer engagement has led to a sequential improvement in order inflow (stable order backlog of Rs4,390cr as of September 30, 2020), supported by good recovery in a few market segments. Company is witnessing consistent improvements over the past couple of months with higher order execution across some key segments and industries, which have ramped up production, post easing of lockdown. Stock is currently trading at an attractive valuation of 21x FY23E P/E and 21x FY23E EV/EBITDA. Return ratios are likely to remain healthy (ROEs at 20%+ post FY22E).

SUNDRAM FASTENERS

We like Sundram fasteners due to it’s a) diversified geographical presence; b) de‐ risked business model with presence in both automotive and Non‐Automotive c) presence in multiple segment from 2‐W to HCV in Automotive segment and d) diverse customer base. The company is well positioned to grab the opportunity emerging from the developing macro situation with a) volumes offtake back to pre‐ COVID levels for several segments, including cars, tractors and 2Ws b) global shift and GoI’s initiative towards electric & hybrid with company being well placed to address the demand by developing a product for EV c) recent budget announcements directly or indirectly would have positive impact on Automobile industry like voluntarily vehicle scrappage policy, PLI (product linked incentive) scheme, focus on capability development, large push on infrastructure spending and reduction in custom duty on steel to 7.5%.    

Sundram fasteners has showcased a healthy financial performance in the past (FY10‐ 20 PAT CAGR of ~15.5%) and dividend pay‐outs (25%+). We believe, improvement in financial performances across major business units is likely to keep ROEs at 18%+ post FY22E period. We believe company is likely to see accelerated growth between FY22‐25 as both automotive and non‐automotive verticals will do well, which would also lead to re‐rating in the stock. Given the quality play, the stock is currently trading at an attractive valuation of 22x FY23E P/E and 13x FY23E EV/EBIDTA.

CUMMINS INDIA LTD

Cummins India Ltd is technology leader in on‐highway (diesel and natural gas engines) and off highway (power generation, construction and mining) businesses. Cummins India has support of a strong parent i.e. Cummin Inc (51% stake)  ‐  an American multinational corporation that designs, manufactures, and distributes engines, filtration, and power generation products, which leads to numerous benefits. These includes extension of research facilities and technology advancement available with Cummins Inc on a continuous basis. Cummins is well placed to pocket the opportunities arising from government’s initiative to make India a $5 trillion economy by FY25. The huge outlay towards the infrastructure sector in union budget 2020‐21 is expected to provide healthy growth opportunities for infrastructure companies, and domestic market expected to perform well, exports to improve gradually.  

We expect CIL to outperform its peers because the company is well positioned and strongly backed by a) innovative products and solutions b) market leadership particularly in HHP in the domestic market c) better export opportunities d) and margin expansion due to continuous focus towards restructuring several of the company’s operations to reduce costs and streamlining operations. Despite sharp rally seen in stock price recently, we believe stock can re‐rate further on account of strong structural growth outlook which would not only improve earning but also sentiments. We expect improvement in profitability ratio (expects ROE to move to 18% by FY23 from 15.5% in FY20). The stock is trading at an attractive valuation of 21x of FY23E..

STEEL STRIPS WHEELS

Steel Strips Wheels Ltd (SSWL) is one of the major player in the Steel and Alloy Wheel Rims (commands market share of ~50% in passenger cars, ~45% in tractors, ~50% in commercial vehicle and ~70% in OTR), having total manufacturing capacity of 19.8mn units/annum. It enjoys strong relationships with its suppliers ‐Tata Steel and Sumitomo Metal Industries Ltd.  ‐  which are also strategic investors in the company  

We believe, SSWL is well placed with a) higher contribution from better margin segment ‐ Alloy Wheels and exports to drive volumes and margins, b) antidumping Duty and CVD on Chinese Wheels in EU & USA – opportunity of ~10mn High Speed Trailer Steel Wheels. c) recent budget announcements directly or indirectly would have positive impact on Automobile industry like voluntarily vehicle scrappage policy, PLI (product linked incentive) scheme, focus on capability development, large push on infrastructure spending and reduction in custom duty on steel to 7.5%

At the CMP, the stock is trading at an attractive valuation of 6x FY23E P/E and 4.5X FY23E EV/EBITDA

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