Sterling Tools hits 4-year high on strong Q3 results; surges 40% in 1 month

Shares of Sterling Tools rallied 10 per cent to hit an over four-year high of Rs 3719.95 in Thursday’s intra-day trade, in an otherwise weak market after the company's net profit more-than-doubled for the quarter and nine months ended December 2022. In comparison, the S&P BSE Sensex was down 0.08 per cent at 59,659 at 02:08 PM.

In past one month, the stock of auto ancillary company has zoomed 40 per cent, as against 2.6 per cent decline in the benchmark index, It traded at its highest level since December 2018. It had hit a record high of Rs 478 on December 8, 2017. 

Sterling Tools is the 2nd largest automotive fastener manufacturer in India. The company is one of the largest motor control unit (MCU) suppliers for electric vehicles in India. It entered the electric vehicle (EV) space in 2020 and is now one of the largest e-2W MCU suppliers in India. MCUs are one of the most important components of an EV and require a combination of power electronics, motor control algorithm, and firmware expertise.

For Q3FY23, the company reported PAT of Rs 13.9 crore, against Rs 5.5 crore in Q3FY22. For 9MFY23, it posted PAT of Rs 40.1 crore, against Rs 18.7 crore in the same period last fiscal.

Revenue from operations grew 64.7 per cent year-on-year (YoY) at Rs 560.3 crore in 9MFY23. However, earnings before interest, tax, depreciation, and amortisation (Ebitda) contracted 140 bps YoY to 13.7 per cent.

The revenue growth was primarily driven by increase in content per vehicle, overall robust industry demand & parts SOB increase in select OEM’s.

The EV theme is the next big thing in the industry and the company is well positioned to expand out footprint in that vertical. The turnover in this vertical touches Rs 119 crore in 9MFY23 as compared to Rs 7 crore in 9MFY22.

The management said the company continue to focus on increasing sales in the EV vertical by catering to new OEMs, developing new products and sharpening its engineering capabilities. This strategy will enable the company to expand its footprint and grab market share, the management said.

Sterling Gtake E-Mobility Limited (SGEM), a subsidiary, manufactures MCUs for electric cars. Gtake is a technology leader in motor control units for electric and hybrid vehicles and has a dominant market share in the electric CV space in China. SGEM is first mover advantage in application support, market development as well as product localization. It has installed capacity of 3,00,000 MCUs and facility expansion being planned to further enhance capacity.

The company enjoys a healthy share of business (SOB) with leading automotive original equipment manufacturers (OEMs), including Maruti Suzuki India (MSIL), Honda Motorcycles and Scooters India (HMSI), Tata Motors (TML) and Ashok Leyland (ALL), Mahindra & Mahindra among others. Benefitting from its expertise in developing value-added specialised, and critical fasteners including those used in engine and transmission systems, the company became a key development partner for auto OEMs and their fastener requirements.