How Steel Strips Wheels Became the Hottest Stock in the Auto Sector

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Steel Strips Wheels: A Hot Stock to Watch Out for in the Auto Sector

Steel Strips Wheels (SSWL) is a leading manufacturer of steel and alloy wheels for various segments of the automobile industry. The company has been delivering strong performance in terms of revenue, profitability, and exports, making it a hot stock to watch out for in the auto sector.

Record High Share Price

SSWL’s share price hit a record high of Rs 208.80 on June 26, 2023, surging 9 percent on the BSE in intra-day trade amid heavy volumes. The stock has gained 41 percent in June so far, outperforming the S&P BSE Sensex which is up less than 1 percent during the same period.

The share price rally is driven by the hopes of healthy volume growth as the company reported a 9.84 percent year-on-year (YoY) increase in net turnover to Rs 357.27 crore in May 2023. The company also recorded the highest-ever 225 percent YoY growth in exports by volume in the last 12 months.

Diversified Product Portfolio and Customer Base

SSWL has a diversified product portfolio and customer base, catering to different segments of the automobile industry. The company currently has four plants in India with a total production capacity of around 23 million wheels per annum (including 3 million wheels per annum for alloy wheels).

SSWL’s products are used by major domestic and global automobile makers such as Maruti Suzuki, Hyundai, Tata Motors, Mahindra & Mahindra, Honda, Toyota, Renault-Nissan, Ford, Volkswagen, BMW, Mercedes-Benz, Volvo, and others.

The company is also expanding its presence in the alloy wheel segment, which has higher margins and demand than steel wheels. Alloy wheels are popular among premium and SUV segments of passenger vehicles and two-wheelers. SSWL is increasing its alloy wheel capacity from the existing 30 lakh units to 48-50 lakh units by FY25 to cater to the global demand.

Attractive Valuations and Balance Sheet

SSWL is trading at attractive valuations compared to its peers and historical averages. The stock is trading at less than 10 times its earnings per share (EPS), 6 times its enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA), and less than 2 times its book value (BV) for FY25 estimates.

The company also has a healthy balance sheet with low debt levels and strong cash flow generation. The gross debt of the company has declined from Rs 1,000 crore as of FY20 to Rs 640 crore as of FY23 and is expected to further decline to below Rs 550 crore by FY25. The debt-to-equity ratio of the company is expected to be around 0.3 by FY25.

Conclusion

SSWL is a well-established player in the auto components industry with a strong track record of growth and profitability. The company has a diversified product portfolio and customer base, catering to different segments of the automobile industry. The company is also expanding its presence in the alloy wheel segment, which has higher margins and demand than steel wheels.

The stock is trading at attractive valuations compared to its peers and historical averages. The company also has a healthy balance sheet with low debt levels and strong cash flow generation.

SSWL is a hot stock to watch out for in the auto sector as it offers a powertrain agnostic product profile (no EV risk), healthy volume growth visibility, increasing share of exports & alloy wheel in overall sales mix, the consequent rise in margins & return ratios.

Disclaimer: This blog post is for informational purposes only and does not constitute investment advice. Please consult your financial advisor before making any investment decisions.

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