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Shares of Steel Strips Wheels (SSWL) hit a record high of Rs 208.80, surging 9 per cent on the BSE in Monday's intra-day trade amid heavy volumes, on hopes of healthy volumes growth. Thus far in the month of June, the stock of the auto components & equipments company has zoomed 41 per cent. In comparison, the S&P BSE Sensex is up less than 1 per cent during the period.
SSWL, on June 1, announced that the company has achieved net turnover of Rs 357.27 crore in May 2023 vs Rs 325.26 crore last year, recording 9.84 per cent year-on-year (YoY) growth. The company recorded the highest-ever 225 per cent YoY growth in exports in the last 12 months by volume.
SSWL is primarily engaged in the business of manufacturing Steel Wheel Rims and Alloy Wheel Rims catering to different segment of automobile industry. It currently has four plants in India with total production capacity of around 23 million wheels per annum (including 3 million wheels per annum for alloy wheels).
SSWL is looking to expand its presence in alloy wheel with global passenger car segment customer. In view of that, the company is expanding the capacities to cater the global demand. Globally Alloy wheel is very popular with more than 80 per cent wheel penetration. It gives huge export opportunity to SSWL to imitate the steel wheel exports story.
"SSWL operates in an oligopolist industry structure and is a sound proxy of underlying volume growth in the domestic auto space. Demand prospects are steady in the steel wheel business while robust in the alloy wheel segment amid increasing penetration of SUVs and premiumisation trend underway in PV, 2-W space. It counts all major OEMs at its clients. With alloy wheel segment operating at peak utilization levels, it is expanding capacity in this domain from existing ~30 lakh units to ~48-50 lakh units by FY25 with realisations in this space at ~3-4x steel rim and EBITDA/unit at ~2x the base business," analysts at ICICI Securities said.
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Post hitting a peak gross debt of Rs 1,000 crore as of FY20, debt on SSWL’s books has been on a constant decline amid healthy cash flow from operation (VFO) generation and controlled capex spends, with gross debt now down to Rs 640 crore as of FY23. It is expected to further decline to sub Rs 550 crore levels by FY25E.
The brokerage firm has assigned a 'BUY' rating to SSWL amid powertrain agnostic product profile (no EV risk), healthy volume growth visibility, increasing share of exports & alloy wheel in overall sales mix, consequent rise in margins & return rations
“We also derive comfort from its inexpensive valuations (<10x PE, ~6x EV/EBITDA and <2x PB on FY25E) and healthy b/s (0.3x debt: equity: FY25),” analysts said.
