Shares of Steel Strips Wheels, a prominent player in the automotive wheel manufacturing sector, have shown remarkable performance in the past year, delivering a substantial 81% return to its shareholders. For long-term investors, the rewards have been even more impressive, with shares skyrocketing by an impressive 573% over the last three years.
In a recent report, Axis Securities, a domestic brokerage firm, has reiterated its positive stance on the stock while also increasing its target price to ₹325 per share, up from the previous target of ₹240, maintaining a 'buy' rating.
Axis Securities noted that Steel Strips Wheels has successfully diversified its product offerings beyond steel wheel rims, introducing premium alloy wheel rims in FY19. It said that the company's strategic focus on plant automation to reduce factory lead times and enhance production capacities is expected to contribute significantly to higher returns on investment in the future.
As part of this growth strategy, the company is currently in the process of installing new machinery to increase its alloy wheel production capacity from 3.24 million to 4.8 million by the end of FY24. Additionally, the company has invested in advanced machinery for the production of flow-formed alloy wheels.
During a recent plant visit, Axis Securities witnessed the installation of a new machine line dedicated to producing aluminium steering knuckles. This production line, according to the brokerage, has a capacity of 3 lakh units per year (one car needs four knuckles).
The company has plans to install 5–6 more machines by FY26, supported by orders from M&M and a Letter of Intent from Tata Motors. This shall require an additional capex of ₹200 crore by FY26, as stated by the brokerage.
Traditionally, in India, the steering knuckle is made of ductile cast iron or forged steel. However, due to the recent tendency, more cars will be supplied with aluminium knuckles.
On the export front, the brokerage said that the company is focused on a shift of sales mix towards the high-margin export wheel segment. The company currently supplies wheels to the USA and EU, among others, via wholesalers like Road Ready, Alcar Wheels, Tredit, and OE Wheels in the aftermarket. The management is hopeful to start exports to OEMs like Volkswagen in the near future, thereby aiming to double its exports by FY25, it added.
Earlier in August, the company announced that it had received its first export order for OTR wheels for an OEM in the Oceania market. These orders are for 3-wheel sizes and will be executed from next month onwards from the Dappar plant.
This marks the entry of SSWL into a new segment and geography, which compliments its strategy to increase its presence in the global OEM market of OTR steel wheels, as per the company's regulatory filing.
Meanwhile, Axis Securities factored in total wheel volumes at 19.5 million and 20.5 million units in FY24 and FY25, respectively. With alloy wheels and export share increasing and the introduction of a new product line-aluminium steering knuckles, the brokerage estimates the company's EBITDA and PAT to grow at 11% and 17% CAGR over FY23–26.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.