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Strategic partnerships to drive business growth

Sharda Motor Industries Ltd. (SMIL) and Eberspaecher Exhaust Technology International inked a JV for the development and production of exhaust after-treatment systems for commercial vehicles that fulfil the new BS VI emission regulations. The rationale behind the JV was to provide customers with the local market expertise of SMIL, coupled with Eberspaecher’s cutting-edge global technology and production know-how, leading to reduced emissions. This JV has helped the company substantially increase its addressable market as well as content per vehicle, and would only increase going forward.

Robust cash book to be augmented by various growth catalysts

SMIL is a debt-free corporation with Rs.572 crore in cash and cash equivalents as on Q1FY24, as well as monetizable properties in the national capital region. The management stated that their cash surplus would likely be utilised for lucrative M&A opportunities in powertrain agnostic products. The company has backward integrated with two tube mills and three stamping plants, thereby, creating a structural advantage. Leveraging this supply chain efficiency, it can lead to further cost optimization and a strategic gain over competitors. Additionally, the TREM V norms that will be coming into effect from April 2024, will propel most of the domestic tractor market to use the company’s emission products, according to the management.

Strong market position and customer base

SMIL is a major player in the Indian automotive components sector, with a strong presence in both the exhaust and suspension systems markets. Following the company's foray into the commercial vehicle segment in a more prominent way through the joint venture with Eberspaecher, and considering SMIL's decades long relationships with the OEMs, the company is well positioned to receive orders from the OEMs where the company was supplying its products already for the passenger car segment, to receive orders for the commercial vehicle segment as well.

OUTLOOK & VALUATION

Factoring the various growth triggers for Sharda Motor Industries Ltd, along with strong fundamental metrics that will enhance top-line growth as well as EBITDA levels, we expect FY26 revenue at Rs.3494.6 cr, EBITDA at Rs.446.2 cr at an EBITDA margin of 12.9% and Adjusted PAT of Rs.309.3 cr. Given the strong growth and margin outlook, we estimate FY26E EPS at Rs.104.0, and assign a PE multiple of 13x to arrive at a target price of Rs.1353, which is an upside of ~46.2% from its last traded price of Rs.925. We re-instate coverage on Sharda Motor Industries Ltd. with a BUY rating, over an investment horizon of 24-30 months.

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