SSWL – “Finest Producers of Steel & Alloy Wheels”

Steel Strips Wheels Limited is engaged in designing and manufacturing automotive steel wheels. SSWL is a leading supplier to Indian as well as Global Automobile Manufacturers. The company’s product range includes Steel wheels for 2 and 3 Wheelers, Passenger cars, Multi-Utility Vehicles, Tractors, and Trucks. The company has three manufacturing units located at Dappar (Punjab) and Oragadam (Chennai), where car wheels are manufactured, and the third unit at Jamshedpur (Jharkhand) for truck wheels. They have a total capacity of manufacturing 17 million wheels. The company exports to Europe and South America also.

Steel Strips Wheels Limited is one of the Multibagger Stocks, identified by Dynamic levels Research based on technical and fundamental research.

SSWL share price has touched a 52 week high of Rs. 587 on  22-Aug-2016 and a 52 week low of Rs. 282.40 on 17 -Feb -2016, and is currently trading at Rs. 566.15.

Share Holding

The promoters holding in the company stands at 59.01% while Institutions and Non-Institutions hold 0.55% and 40.43% respectively.

Financial Analysis

Quarterly Results

During the quarter ended 30th June 2016, the total income from operations of Steel Strips Wheels Limited reported a growth of 5.35% on the Q-o-Q basis and stood at Rs.325.40 crore against Rs. 308.88 crore in the quarter ended 31st March 2016. A boost in total income from operations shows strong development in the company’s business.

The operating profit of Steel Strips Wheels Limited for the quarter ended 30th June 2016 stood at Rs. 30.44 crores against Rs. 30.21 crore in the quarter ended 31st March 2016, growing by 0.76%

PAT grew by 0.59% and stood at Rs. 18.60 crores for the quarter ended 30th June 2016 against Rs. 18.49 crore in the quarter ended 31st March 2016

EPS stood at Rs. 12.15 for Q1FY17 against Rs. 12.11 in Q4FY16

Annual Results 

For the year ended March 31, 2016, Steel Strips Wheels Limited, on Standalone basis, reported Net Sales of Rs. 1181.89 crore compared to Rs. 1152.71 crore in FY2015. The figure indicates the marginal growth of 2.53%.

For the year ended March 31, 2016, Steel Strips Wheels Limited on Standalone basis reported PAT of Rs. 61.18 crore compared to Rs. 39.40 crore in FY2015 registering growth of 55.28%.

Investment Rationale

• SSWL has entered into an agreement with a South Korean company named Kalink Co. Ltd to set up an alloy wheel manufacturing facility at Mehsana, Gujarat. The production capacity will be of 1.5 million wheel rims and painting of 2.5 mn low pressure die casting with diamond cutting. The project is expected to be commissioned in February 2017, and commercial production is expected to start by Q3FY18.
• The company has established a modern and high-tech steel process unit at Dappar (Punjab) for Steel Pickling, Slitting and cut to Length with a capacity of 20000-ton steel with a Capex of about Rs.16 crore.
• The company is implementing expansion plan at Chennai for manufacturing 1 million wheels with a capex of Rs. 175 crore. The company expects to export 50% production to US, and Europe when the plant goes into production in Q3FY18. At peak utilization the sales generation is expected to be Rs. 350 crore.
• Change in volume mix will help in better margins – SSWL expects positive growth in all segments of vehicle categories. While tractor sales could be recovered in FY17 and beyond due to better monsoons, the truck and OTR segment has been growing and will continue to grow going forward.
• Government has imposed anti dumping duty on imported alloy wheel rims for 5 years as below:

China: $2.15/Kg Korea: $1.18/Kg Thailand: $1.06/Kg. This anti dumping duty has made import unviable, thereby, widening the demand supply gap by additional 1Mn wheel rims.

• The demand for Alloy wheels is growing. The shift is happening from Steel Wheel Rims to Alloy wheels across all variants of passenger vehicle.
• Demand Supply Gap which is expected to reach around 2.6mn wheel rims in 2018-19

 At CMP of Rs.556 the stock is trading at a P/E of 12.96 we recommend a buy on the stock with a price target of Rs. 600