Buy Shriram Pistons and Rings; target of Rs 4650 Emkay Global Financial

buy

Emkay Global Financial' research report on Shriram Pistons and Rings

We hosted SPRL’s management, to discuss key strategies and growth outlook for legacy business and fast-growing newer verticals. KTAs: 1) The management reiterated confidence in sustaining industry-beating growth (8- 10% outperformance vs underlying auto industry). 2) SPRL aims for continued scale up in legacy business on i) significant opportunities aided by its diversified portfolio across powertrains, higher focus on emerging ICE tech, and strategic investments in last 5Y (Rs6-7bn); ii) market-share gains from current 50%, on limited capacity addition by peers; iii) higher focus on exports, aftermarket (global capacities being vacated on EV fears). 3) SPRL is seeing rapid scale-up, margin expansion across acquired entities (EV components, precision plastic injection molding, interiors, lighting) via superior yet competitively priced techenabled offerings and share gains in existing/new clients; these businesses generate healthy cashflows and are self-sustaining. 4) Antolin’s offerings are technology/engineering heavy; here SPRL aspires for margin expansion to 15% (10% now) via a major operational reset and insourcing synergies. 5) SPRL is looking for further synergistic M&A; it has laid out key criteria: i) largely automotive, ii) powertrain-agnostic, iii) tech play with scalability, iv) margin accretive, v) growth centric, India-focused. We favor SPRL in auto ancillaries, on its dominance in core segments and transition into a multi-product player via diversification into non-ICE (35% of revenue by FY27 vs nil/10% in FY23/25).

Outlook

We build in 26%/22%/20% FY26-28E revenue/EBITDA/EPS, with >20% return ratios. We reiterate BUY and TP of Rs4,650, at 25x Dec-27E PER.

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Shriram Pistons and Rings - 0203026 - emkay