Sterling Tools said that the credit rating agency ICRA has reaffirmed the long-term as well as the short-term credit rating of the company.
ICRA has reaffirmed the company's long-term rating at "[ICRA] AA- (Stable) and the short-term rating at "[ICRA] A1+.
The rating agency said that the ratings reaffirmation factors in the stable operating performance of Sterling Tools (STL) over the past 12 months, aided by its established market position as the second largest automotive fastener manufacturer in India.
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 has become a key development partner for auto OEMs for their fastener requirements.
The company reported a healthy revival in revenues during FY2022, even outpacing the industry growth and closed the fiscal with revenue growth of approximately 43% YoY on a consolidated basis and approximately 32% YoY on a standalone basis. This was supported by the improvement in the economic environment and consequently higher demand from the automobile industry. The performance continued to improve in Q1 FY2023 with 53% YoY growth in revenue.
Even though the company's margins have remained impacted to an extent by inflationary pressures, they continue to remain healthy (OPM of approximately 15% in FY2022). Aided by improved operating leverage and an easing in metal prices, STL's margins are expected to report an improvement, going forward.
To cater to the new business opportunities in the automotive industry, the company collaborated with a Chinese company, Jiangsu Gtake Electric, to form a joint venture (JV), Sterling Gtake E Mobility (SGEM). However, considering the delay in obtaining FDI approvals by its Chinese partner, STL currently holds full stake in SGEM.
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SGEM manufactures motor control units (MCUs) for a wide range of electric vehicles (EVs) ranging from high-speed scooters (>40 kmph), cargo 3-wheelers (3Ws) and light commercial vehicles (LCVs). . A ramp up in revenues from the business would support the company's entry into the EV component space and diversify its revenue streams, going forward. Moreover, as the quantum of investments is likely to be limited, the company's credit metrics are not expected to be significantly impacted.
ICRA notes that over the past few quarters, the company's reliance on working capital borrowings has increased to some extent on account of raw material stocking to counter the volatilities in steel prices and supply as well as initial working capital investment required by the subsidiary. Accordingly, gross debt levels increased to Rs 110.0 crore as on 31 March 2022 (Rs 105.4 crore in FY2021, and Rs 75 crore in FY2020.
Nevertheless, the company continues to maintain adequate cash and liquid investments (Rs 31 crore as on 31 March 2022) resulting in net debt levels of Rs 70 crore.
The "stable' outlook on the long-term rating reflects ICRA's opinion that STL would continue to maintain healthy credit metrics going forward as well, aided by its established market position as a leading automotive fastener manufacturer.
Sterling Tools manufactures and markets high tensile cold forged fasteners, primarily for the automobile industry. At present, it is positioned as the second largest fastener manufacturer in India, after Sundaram Fasteners. The company caters to leading automotive companies in India and tier-I auto component manufacturers in Europe. STL's product portfolio includes fasteners, which find application in both automotive and non-automotive segments.
The company's consolidated net profit surged to Rs 9.58 crore in the quarter ended June 2022 as against Rs 3.13 crore during the previous quarter ended June 2021. Sales rose 94.80% to Rs 173.88 crore in Q1 FY23 over Q1 FY22.
The scrip fell 1.17% to end at Rs 214.75 on the BSE.
In the past six months, the stock has zoomed 42.79% while the benchmark Sensex has lost 1.43% during the same period.
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