Amid a significant improvement in auto sales on demand recovery, the stock of Sundram Fasteners, an auto ancillary firm, has seen its price rise, gradually up from a June 2022 low of ₹673 apiece to an all-time high of ₹1,003 apiece currently, a rally of 49%. The stock has climbed 262% from its May 2020 low of ₹276 to its current market price.
The company, which is a part of the TVS Group, is one of the leading auto component manufacturers in India. It is into manufacturing of critical, high-precision components for the automotive, infrastructure, windmill, and aviation sectors.
On February 2, the company reported a 7.27% rise in its consolidated net profit at Rs.118 crore for the December quarter of FY23. It had posted a net profit of Rs.110 crore in the year-ago quarter.
The total revenue from operations during the quarter went up to ₹1,403 crore from ₹1,208 crore registered last year, a growth of 16.14% YoY.
Meanwhile, the company bagged a ₹2,045 crore contract from a "leading global automobile manufacturer" to supply sub-assemblies for the latter's electric vehicle (EV) platform.
Domestic brokerage firm Monarch Networth Capital has recently initiated coverage on the stock with a "buy" call and a target price of ₹1,220 apiece, signalling a potential upside of 22% from the stock's current market price.
The company is a leader in the fastener industry with a 40% market share. SFL is slated to grow faster than the last business cycle due to strong growth in domestic auto OEM sales, rising demand for heavy vehicles in North America, the ramping up of its EV portfolio, and the planned addition of new products, said the brokerage.
SFL’s strategy to increase exposure to the non-auto segment, including windmills and industrials, from 35% to 50% in the long term is the right step to de-risk business from a steep auto down-cycle, it highlighted.
The Rs. 3.5 billion capex for manufacturing windmill tower bolts at Puducherry has the potential to more than double revenues from FY22 levels, supported by strong demand from Europe, it said.
Expansion of capacity as per the PLI scheme to develop advanced automotive components has the potential to ramp up revenues to Rs. 5 billion annually, according to brokerage.
EV penetration in India is at a low of 4%, and the company has ample scope to develop and sell new components like pinions, dual gears, and electrical fuel pumps, along with rising export demand from long-standing customers like General Motors, it added.
Over FY22–25E, the brokerage anticipates revenue, EBITDA, and PAT growth of 14.5/19.3% and 21.2%, respectively.
04 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
