Buy Steel Strip Wheel; target of Rs 240: Axis Securities

Axis Securities' research report on Steel Strip Wheel

Steel Strips Wheels Ltd (SSWL) reported a mixed set of numbers for Q1FY24. Revenue stood at Rs 1,044 Cr (up 3%/4% YoY/QoQ), a slight 2% beat on estimates, which was mainly led by higher overall volumes (partially offset by lower ASP due to softening in commodity prices). SSWL reported EBITDA of Rs 113 Cr (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 PAT stood at Rs 47 Cr (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% vs. our assumption of 30%.

Outlook

With a focus on fulfilling export demand from the US and Europe, ramping up of Alloy wheels division, AMW ramp-up capitalising on the longish CV upcycle, and incremental demand from the Motor+Controller EV business, we now value the stock at 6.0x EV/EBITDA (from 5.3x) on our Jun’25 EBITDA (vs. FY25E EBITDA). We maintain our BUY rating on the stock with a revised TP of Rs 240/share (from Rs 165/share earlier), implying an upside potential of 15% from the CMP.