Steel Strips Wheels Ltd. 6 th August, 2016 BUY

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1 Company Report BROKING DEPOSITORY DISTRIBUTION FINANCIAL ADVISORY Steel Strips Wheels Ltd. 6 th August, 2016 BUY CMP Rs Target Price Rs BSE Code Market Cap (Rs Cr.) Week High/Low / Industry Auto Ancillary Face Value Rs Shares O/S 1.55 Cr. EPS(TTM) Book Value P/E P/B 1.70 Shareholding Pattern SSWL is a part of the Steel Strips Group, headquartered in Chandigarh. It is engaged in the manufacturing of single piece steel wheel rims for scooters, passenger cars, utility vehicles and tractors. It supplies rims to almost all major manufacturers of two wheelers, three wheelers, four wheelers, tractors and heavy commercial vehicle. SSWL has strong market share in all segments. It captures 50% in passenger car, 38% in Tractors, 40% in Commercial Vehicles and a lion share of 70% in OTR. The company has registered decent results for the quarter ending June The standalone revenues grew by 11.23% to Rs crores vs. Rs cr. in the year ago quarter. Operating profit grew at Rs crores as against Rs crores in the corresponding quarter last year; representing growth of 32.5%. The adjusted net profit surged sharply at Rs crore as against Rs crore, depicting a sharp growth of 53% y-o-y. SSWL has achieved highest ever monthly sale of wheel rim in July 2016 at lakhs vs lakhs; representing a 8.4% y-o-y growth. The company expects to clock record second quarter to reach 38 lakhs wheels vs wheels y-o-y indicating close to 13% volume growth for Q2. The passenger car segment grew 3% y-o-y, 2&3 wheelers grew sharp at 35%, Truck sales muted by 7%, tractor wheels grew 9% and exports degrew by mere 1.7%. SSWL has been a continuous and prestigious winner of orders of wheels from across the domestic and global automobiles companies. Valuation Research Analyst: Vineeta Mahnot research@hemonline.com With strong and continuous order flow, cost saving initiatives, improving capacity utilizations, volume growth, technical collaborations and benefit of upcoming Alloy wheel plant; SSWL growth trajectory is visible. We believe the company is trading at an attractive valuation at 10.13x and 8.27x of standalone FY17EPS of Rs and FY18EPS of Rs We initiate a BUY on the stock with a target price of Rs.640 (appreciation of about 25%) with the medium to long term investment horizon. For Private Circulation Only 1 Hem Research

2 Business overview SSWL Designs & manufacture automotive steel wheels since 1991 and is among the leading supplier to Indian & Global Automobile Manufacturers. Its product range comprises Steel wheels for Two and Three Wheelers, Passenger cars, Multi utility vehicles, Tractors, Trucks & OTR Vehicles. The company has three production facilities: SSWL Mother Plant is located in North India (Dappar, Punjab) dedicated for 2 & 3 wheeler, passenger Car, MUVs & tractors segment vehicles. The installed capacity of the mother plant is 9.0mn wheels. Commercial Vehicles Wheel plant is on eastern coast of India (Jamshedpur, Jharkhand) closer to Steel source, Tata Steel. SSWL delivers LCV, HCV & OTR wheels from this facility with a capacity of 1.6 Mln wheels. Passenger Car wheel plant is on southern coast of India (Chennai, Tamilnadu) to meet the Exports demand to Europe & South America with a capacity of 6 Mln wheels. The State of Art facilities of SSWL caters to widest range of Domestic & Global Automobile customers demands with highest quality standards benchmarks. SSWL delivers the best in class steel wheels to all major Automobile manufacturers in India and caters to widest range of vehicles manufactured in the country. SSWL is also a supplier to global OEMs and delivers to countries like Russia, Brazil, Thailand, Japan, Germany, Romania, France, UK, Morocco & Italy. SSWL Footprints: SSWL caters to all the major Indian as well as Global OEM s or their steel wheel requirement. 1. Passenger Cars : SSWL is a leading Passenger Car wheel manufacturer in India supplying wheels to Maruti Suzuki, VW, Renault-Nissan, Mahindra & Mahindra, Tata Motors, Honda Motors and Hyundai Motors. 2. Tractors : SSWL supply Tractor wheels to all the Tractor manufacturers in India including New Holland, Mahindra & Mahindra, Tafe tractors, John Deere, Escorts, Sonalika Group. 3. Commercial Vehicles : SSWL makes both Tube type and Tubeless wheels with Flow forming technology for CV segment. CV wheels are supplied to Tata Motors, Daimler, Ashok Leyland, Ashok Leyland-Nissan and Swaraj Mazda. 4. OTR: SSWL also supply OTR wheels to JCB, Larsen & Toubro & BEML. 5. Exports : Internationally, SSWL caters to PSA Peugeot Citroen (France & Spain), BMW (UK, Germany & Netherland), VW/Audi (Germany & Argentina), Piaggio (Italy), Siam Kubota (Thailand and Japan), Kromag (Austria), Just (Germany) and SWTI (Slovakia), Renault Nissan Group, SSangyong Motors-Korea, CIR Merker-Italy. For Private Circulation Only 2 Hem Research

3 Management s firm outlook The Company s management is positive on the growth outlook of SSWL. They are hoping that their topline with grow by percent in FY17 with maintaining EBIDTA margins at percent. The volume growth is expected to be at 11-13% along with higher realization. The price increase in steel prices if any, will be passed on to the customers, thereby maintaining the margins and even an expansion in the margins by about 50bps is expected in future owing to cost cutting initiatives. Increasing capacity utilization Capacity utilization has been on an uptrend across all the three plants of the company. The mother plant at Dappar has maintained capacity utilization close to about 88% during FY which has been increased to more than 95% in first quarter of financial year The Jamshedpur plant has witnessed a substantial increase in capacity utilization during at 82.91% from 56.25% last year as it is specifically for commercial vehicles (CV) wheels which has seen strong demand. The Company is focusing on debottlenecking in its plants in order to increase/maintain its capacity utilization. In the era of increasing demand, the company s Dappar plant has a line in which capacity can be added by 10% with a mere capex of Rs.4-5 crores. Chennai plant also has seen sharp upsurge in capacity utilization at 65.14% in FY16 from 60.49% last year. For Private Circulation Only 3 Hem Research

4 Upcoming alloy wheel plant-next trigger for growth SSWL is planning to set up a plant for alloy wheel at Mehsana, Gujarat in technical collaboration with Kalink, Korea with a production capacity of 1.5 million and painting capacity of 2.5 million wheels owing to multiple benefits of alloy wheels over steel wheels. SSWL believes that this business is the new value stream for the company with an investment of approx USD 50 million. The plant has many strategic benefits like access to cheap power and gas, abundance of skilled labour, close proximity to large OEM s like Suzuki, Ford, Tata, Honda and sea port proximity which leads to easy access for exports. With the commissioning of the plant, SSWL will be covering the entire portfolio covering Steel/Alloy wheel under one umbrella and offering an additional product to its existing strong client base. Going forward, SSWL believes this business to contribute a major chunk of revenues. Tilt towards high margin heavier wheels SSWL has been able to maintain the largest chunk of contribution to sales from Car and Multi utility vehicles (MUV) close to about 60%. Whereas two/three wheeler contribution towards sales has declined to 21.6% in FY16 from 25.4% last year. However the Commercial vehicles especially Trucks and OTC being high margin business has seen a sharp uptick in its contribution towards revenue at 10.2% in FY16 from 7.4% last year; thereby increasing higher realization for the company and improving margins. The revival in demand would help the company going forward. For Private Circulation Only 4 Hem Research

5 Standalone Profit & Loss Account Rs. Crore Particulars FY14 FY15 FY16 FY17E FY18E Net sales Growth % 2.52% 11.00% 11.50% Expenditure EBITDA Growth % 35.04% 15.58% 16.73% EBITDA margin 9.35% 9.33% 12.29% 12.80% 13.40% Other income Depreciation & Amortisation EBIT EBIT margin 6.21% 7.81% 10.33% 10.68% 11.22% Interest PBT Tax Adjusted PAT Growth Net Profit margins Exceptional item (0.02) Reported PAT Equity Capital Res. & Surplus Equity Shares Adjusted EPS Ratios Particulars FY14 FY15 FY16 FY17E FY18E Return on Equity Return on Capital employed Debt/Equity Asset turnover Current Ratio Book value per share Interest coverage For Private Circulation Only 5 Hem Research

6 Balance Sheet Rs. Crore Particulars FY14 FY15 FY16 FY17E FY18E Equity Share Capital Reserves & Surplus Shareholders funds Borrowings Deferred tax liability Sources of funds Gross block , Accumulated Depreciation Net block Capital WIP Investments Deferred tax asset Inventories Sundry debtors Cash and bank balance Other current assets Loans and advances Total current assets Current liabilities and provisions Net current assets Misc exp Uses of funds 1, , , , , For Private Circulation Only 6 Hem Research

7 Standalone Quarterly Financial Highlights Rs. Crore Particulars Q1FY17 Q1FY16 Q4FY16 YoY% QoQ% Revenues Expenditures Operating Profit Adjusted Net Profit Exceptional item Reported PAT OPM% bps (12bps) NPM % bps (27bps) Adjusted EPS* *Adjusted for current number of equity shares Past Price movement of the stock STEEL STRIP WHEE ( , , , , ) For Private Circulation Only 7 Hem Research

8 HEM SECURITIES LIMITED MEMBER-BSE,CDSL, SEBI REGISTERED CATEGORY I MERCHANT BANKER Sebi Registration No For Research Analyst: INH MUMBAI OFFICE: 14/15, KHATAU BLDG., IST FLOOR, 40, BANK STREET, FORT, MUMBAI PHONE FAX JAIPUR OFFICE: , JAIPUR TOWERS, M I ROAD, JAIPUR PHONE FAX GROUP COMPANIES HEM FINLEASE PRIVATE LIMITED MEMBER-NSE HEM MULTI COMMODITIES PRIVATE LIMITED MEMBER-NCDEX, MCX HEM FINANCIAL SERVICES LIMITED NBFC REGISTERED WITH RBI For Private Circulation Only 8 Hem Research

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