Steel Strip Wheels Q1 Results Review - Alloy Wheels Segment, Exports To Drive Growth: Axis Securities

Axis Securities Report

Financial Performance

Steel Strips Wheels Ltd. reported a mixed set of numbers for Q1 FY24. Revenue stood at Rs 1,044 crore (up 3%/4% YoY/QoQ), a slight 2% beat on estimates, which was mainly led by higher overall volumes (partially offset by lower average selling price due to softening in commodity prices).

Steel Strips Wheels reported Ebitda of Rs 113 crore (up 3%/4% YoY/QoQ), which stood in line with our estimates (despite a higher topline).

This was mainly due to adverse raw material costs (3% higher than estimates) and higher personnel costs (9% higher than estimates), which was only partly offset by lower other operating expenses (3% below estimates).

The company’s profit after tax stood at Rs 47 crore (down 1% YoY but flat QoQ). This was a 10% miss from our estimates which was largely on account of an increase in interest costs (29%/4% higher on a YoY/QoQ basis) which was 25% above our estimates and a higher effective tax rate of 33% versus our assumption of 30%.

Outlook

We now factor in higher volumes in FY24/25E at 19.9 million and 22.6 million units respectively. This is on account of an expansion of the company’s alloy wheel capacity as well as more clarity on the AMW ramp-up.

With alloy wheels and exports share increasing, we revise our Ebitda upwards for FY24/25E by 3%/14% respectively. We forecast revenue/Ebitda/profit after tax growth of 17%/25%/43% compound annual growth rate over FY23- 25E.

Valuation and Recommendation

With a focus on fulfilling export demand from the U.S. and Europe, ramping up of alloy wheels division, AMW ramp-up capitalising on the longish commercial vehicle upcycle, and incremental demand from the Motor plus Controller electric vehicle business, we now the stock at 6.0 times enterprise /Ebitda (from 5.3 times) on our June 2025 Ebitda (versus FY25E Ebitda.

We maintain our 'Buy' rating on the stock with a revised target price of Rs 240/share (from Rs 165/share earlier), implying an upside potential of 15% from the current market price.

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