Sterling Tools gains 6% on over 63% surge in Q3 net, EV promise

SGEL’s focus is manufacturing motor-control units (MCUs), which acts as an interface between an EV's batteries and its motor. (Photo by Djordje Petrovic/Pexels)

Auto-component maker Sterling Tools traded up nearly 6 percent to Rs 353 on February 15.

The sentiment around the stock has appreciated drastically after its third quarter results. In the third quarter, the company’s net profit surged 63.5 percent on-year to Rs 10.1 crore, while its revenue from operations jumped 33 percent to reach Rs 151.3 crore and its EBITDA margin improved 60 bps to 15.7 percent.

About 98  percent of the company’s revenue comes from two wheelers. Three wheelers and light commercial vehicles make up 1 percent each of the revenue mix.

The fastener manufacturer diversified into electric-vehicle components in 2020. With the world moving decisively towards electrification of mobility, component makers who are adapting fast seem to be getting rewarded by the market. Sterling Tools set up a 100 percent subsidiary Sterling Gtake E-mobility Limited (SGEL) in partnership with Jiangsu Gtake of Shenzhen (China).

The EV vertical, which has become PBT positive in the two years, saw its turnover hit Rs 119 crore in 9MFY23, which is 17x its turnover in 9MFY22 at Rs 7 crore.

SGEL’s focus is manufacturing motor-control units (MCUs). MCU is an interface between the batteries of an EV and its motors, and therefore controls the vehicle’s movement and acceleration. According to the company, MCUs make up 10 percent of an EV two-wheeler's cost.

SGEM is the sole supplier of MCUs to India’s largest 2W EV manufacturer and has purchase orders from 14 EV original equipment manufacturers (OEM).

The company has had a tumultuous decade. It had shot up from Rs 30 to Rs 430 between 2014 and 2017, corrected by a half to Rs 224 by 2019 and moved largely sideways till June 2022. After that it has appreciated by nearly 61 percent to touch the CMP.

Going ahead, the company is working on expanding to new geographies, exploring inorganic growth opportunities and developing new products to become a one-stop shop for EVs, among other goals.