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• The increasing demand for lightweight materials is driving the necessity for aluminium components. Simultaneously, the company has finalized the construction of a new machining facility at its existing plant level. This facility is tailored to the machining of aluminium forged components, with a particular emphasis on larger connecting rods for agricultural and construction equipment, as well as heavier engines.
• Continued growth, driven by light-weighting and premiumization, is set to outpace industry expectations: SEL has already started production of aluminium forged components, and all the existing lines are fully booked, with plans to add more lines and the new lines are coming for heavier component in Aluminium and steel. In the 2W segment, the premiumization trend continues to increase, and some of SEL's customers are aggressively adding premium content to their vehicles like HD and Triumph. The new capex is largely towards the light-weighting products. We expect the light-weighting and premiumization trend to continue supporting better-than-industry growth for SEL.
• The non-automotive segment will diversify the product portfolio: SEL's future expansion is happening in the non-automotive segment, and the management has increased its capex guidance for FY24, attributing it to capacity expansion, line balancing, and facility build-up. The company has also realigned its vision and raised its long-term sales contribution targets for xEV and tech-agnostic products from 15% to 20%. Sixty percent of sales contribution will come from auto ICE, while 20% each will come from non-auto and xEV and tech-agnostic portfolios.

Outlook & Valuation:  Given the industry's shift towards higher CC segments from lower CC 2W and the integration of more premium components with lightweight materials, the automotive industry is poised to register healthy growth moving forward. SEL is undergoing a transformation from an automotive to a non-automotive and xEV-agnostic products supplier by its ability to adapt to these changes. In the medium to long term, we anticipate substantial revenue growth for SEL driven by: 1) an increasing proportion of revenue generated by the non-automotive segment; 2) securing new orders for engine-agnostic components; 3) an increase in the share of aluminum components; and 4) a revival in the export business, which will contribute to margin expansion in the coming quarters. We introduce FY26 and roll forward our valuation to Sep-25. We expect revenue/EBIDTA/PAT to grow at a CAGR of 16%/21%/29% over FY23-26E and value the stock based on 22x Sep-25E EPS and arrive at the TP of Rs.1200, maintaining OUTPERFORM rating.

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