Buy Steel Strip wheels Ltd For Target Rs. 272 by Arete Securities Ltd
SSWL's Q1FY26 revenue rose 16% YoY to INR 1,187 crore, but declined 4% QoQ, reflecting CV segment challenges, seasonal PV shutdowns, and cautious US demand. EBITDA advanced 8% YoY to INR 122 crore, with a 10.2% margin, down 78 bps YoY, pressured by higher aluminium and steel costs and front-loaded maintenance, spares, and consumables expenses. PAT grew 16% YoY to INR 47 crore, driven by a lower tax rate, but margins stayed flat as depreciation increased due to capex for alloy wheel expansion and the high-growth aluminium knuckle business. Exports soared 30% YoY to INR 160 crore, comprising 13.4% of total revenue.
Segment wise Performance Overview:
i. Alloy Wheel (PV): Despite domestic slowdown, this segment grew with strong export demand leading to higher realizations, increasing its revenue share from 29% in Q1FY25 to 35%.
ii. Tractor Segment: Showed decent growth supported by favourable monsoons, strong export orders, and rising domestic demand.
iii. CV Segment: Underperformed this quarter potentially due to front-loading purchase effect prior to AC cabin mandate in October 2025.
iv. Aluminium Knuckle: Delivered a strong first full quarter after Q3 FY25 commercialization, selling 50,000 units and generating INR 13.2 crores in Q1 FY26, surpassing FY25's INR 11 crores revenue.
v. Export: Growth was witnessed in both the steel and alloy wheel segments. The diversification strategy helped reduce dependence on the US market from 70% in FY24 to 52% in Q1 FY26. Incremental growth was primarily driven by the European region and South America.
European Expansion Boosts Order Book:
SSWL has secured INR 300 crores worth of new steel wheel orders from European OEMs, following the establishment of its whollyowned EU subsidiary. Notably, this order is equivalent to approx. 30% of the company's typical quarterly revenue, marking a significant milestone in its international growth strategy. With Indian operations offering cost advantages of 20-25% in energy and manpower, the company is gaining traction as OEMs shift production outside Europe.
Operational Efficiency Remains Strong:
SSWL has maintained healthy utilization levels across key steel wheel plants 80-85% at Chennai, Jamshedpur, and Mehsana, and 70% at Dappar. Additionally, the company has reallocated 0.5 million units of AMW capacity to Jamshedpur and plans to add another 0.5 million units by September-October 2025 to support growth in the CV segment.
Product Mix Shift Toward Premium & Lightweight Components:
Alloy wheels continue to dominate growth in the PV segment, cannibalizing steel wheels. The LCV segment is witnessing rapid expansion, supporting demand for steel wheels. The aluminium knuckle business is scaling up well, and new component development (lower/upper control arms) is underway, with RFQs currently under discussion.
Capacity Expansion Supporting Strong Operational Performance:
SSWL is focused on expanding capacities for alloy wheels and aluminium knuckles to capture growth opportunities. This expansion complements the company's strong operational efficiency, with key steel wheel plants running at 70-85% utilization. Additionally, 0.5 million units of AMW capacity have already been transferred to the Jamshedpur plant, with plans to add another 0.5 million units by September-October 2025 to bolster growth in the commercial vehicle segment.
Outlook and Valuation:
SSWL is poised for impressive revenue growth in FY26, supported by strong export traction amid turbulent domestic sales and an improving product mix led by alloy wheels and aluminium knuckles, which are contributing significantly to revenue expansion. Additionally, an expected recovery in the commercial vehicle and tractor segments domestically will further support growth. Key capacity expansions are backed by confirmed orders, while margin recovery is anticipated as input costs normalize. Diversified global expansion also helps the company mitigate overdependence on the US, as validated by the significant European order. With controlled leverage and improving profitability, current valuations appear attractive relative to growth visibility. Accordingly, we estimate the company's Revenue/EBITDA/PAT to grow at a 9%/12%/12% CAGR over FY25-FY27E and assign a BUY rating with a target price of INR 272, valuing the stock at 15.3x FY27E EPS and 17.8x FY27E P/E.
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