Stock of this auto ancillary company has zoomed 38% in 3 days

Shares of Sterling Tools rallied 20 per cent to hit a four-year high of Rs 351.25 in Wednesday’s intra-day trade, amid heavy volumes. In the past three trading days, the stock of auto ancillary company zoomed 38 per cent. It traded at its highest level since January 2018. In comparison, the S&P BSE Sensex was up 0.10 per cent at 60,180 at 01:18 PM.

In the past three months, the stock price of Sterling Tools surged 66 per cent, as against 5 per cent rise in the benchmark index. In the past eight months, it has more-than-doubled or zoomed 203 per cent from Rs 116.05, which it had touched on May 12, 2022.

On clarification regarding increase in volume of shares of the company, Sterling Tools said that the increase in volume of the company across exchanges is purely driven by securities market forces and not within the control of the cpmpany.

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.

"The company’s EV revenues constitute 17 per cent of total group revenues, more for any other auto ancillary in the country. Nearly 50 per cent market share in high speed scooter segment, about 33 per cent in overall 2W segment. EV business is EBITDA and PBT positive in less than a year of starting operations," the company said.

Moreover, the management believes that the company’s fasteners business will continue to grow faster than the industry. During H1FY23 (April to September), the fasteners business achieved highest-ever sales with a robust growth of 34 per cent YoY. Investment in Altigreen, too, reflects huge upside post investment by Reliance New Energy Limited.

Sterling Tools is a manufacturer of high-tensile cold forged fasteners for automotive industry, with a presence in all segments of the industry, including passenger vehicles, commercial vehicles, two-wheelers, farm equipment, and offroad vehicles. Sterling Gtake E-Mobility Limited (SGEM), a subsidiary, manufactures MCUs for electric cars. As a result, the company's performance is principally linked to the expansion of vehicle, agriculture, and farm equipment industries.

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.

During FY18, analysts at ratings agency ICRA said that Sterling Tools entered into a business collaboration agreement with Meidoh Co. Ltd., Japan, to develop and sell high tensile fasteners in India. Further, the company formed a subsidiary, SGEM, in technical collaboration with a Chinese company for manufacturing MCUs for EVs, which has already started contributing to the top line (~Rs 68 crore in H1 CY2023) and would support the company’s entry into the EV component space and diversify its revenue streams, going forward.