SSWL reported highest ever monthly turnover Rs.401.88 sales in the month of September 2023.
Exports grew 457%
8 Likes
Recently started following the company, no investment as of today. The company looks impressive with high growth potential, increase in margins, operating efficiencies, and good market standing. However, there are few questions still troubling me here
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The market share figures in each segment are
PV - 50%
MHCV - 53%
Tractor - 44%
OTR - 70%
These numbers have remained constant across quarters for 2-3 years. In every ppt, there is almost zero deviation from the numbers. I find it very strange. There has not even been a 1% movement in any category for years. Their client-specific business share exactly the same across quarters as well.
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For 4-5 years, investors were expecting margin improvement from alloy wheels and exports but not much improvement in numbers here. Covid and inflation might take some blame here though.
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The negligible presence of FII/DIIs for a 4000 Cr. company raises some concerns.
Hoping to get some answers here
6 Likes
@Prankush_Bansal Your observation for the market share figures are quite right and I also found out that that the company has used the same figures in 2016 investors presentation which sounds very strange and makes us question their lack of due dilligence about the factual inaccuracies present.Although we can comprehend that way that the managment either might be using rounded of estimated figures.
They have changed the Market share data for passenger vehicles in OCT 2023 IP.
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Who took their 5% market share?
Might be wheels india or some other import player beacuse they are not focusing much on steel wheels but more on alloy wheels to grow that category with high margins
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This is partly due to pledged equity, nearly 5% is still pledged. Institutional investors have this as one of the primary health checks.
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Yup, valid reason. If the management keeps up with it’s promise of zero pledged shares soon, we might see an inflow of institutional investors then
3 Likes
Some notes from concall dated 10/30:
Capex:
- Capex for FY’24 is expected to be 320 Crs. So far, incurred 190 Crs. till H1FY24.
- 190 Crs. total outlay for alloy wheels.towards capacity ramp up from 3 mil to 4.8 mil. 130 Crs has already been expensed. Production online by Q4.
- 50 Crs towards alloy knuckles (new product)
- Rest 80 Crs. is towards maintenance capex
AMW Autotech Acqusition:
- 138 Crs. cost consideration + 20 Crs. additional setup cost for AMW auto. To be closed in 6 months from word go.
- Plant expected to be operational by Q1FY25.
- Any tax benefit due to AMW acquisition - some tax benefit due to loss carry forward. Have to access the books once acquisition is complete.
- Numbers to start from Truck segment ~25K/month of large wheels. 100- 150 Crs. FY26 onwards will be larger number
Steering Knuckles
- Steering Knuckles - Capex of 200 Crs for 1st Mil units, will generate 240 - 250 Crs revenue. commencing from July 2024.
- For full year FY’24 Capex is 50 Crs. Already spent 15.5 Crs.
- Overall market Potential is 2000 - 2500 Crs exposure. Will like to repeat itself like alloy wheels playbook.
- Producing for PasCar for domestic. Export potential is very large however will take 2-3 years
- Capacity utilization will be 15% for FY25 and ~60% for FY’26
Exports:
- Export guidance for full Year- 600 Crs +
- Out of total 4.8 Alloy wheel capacity → 3.6 mil domestic and 1.2 Mil for export
- alloy wheel export to add ~100 Crs from current base
- No region specific challenges, most of the global demand is met by Asia supply. More participation from alloy wheel side for Next year
Debt Status:
- 800 Crs of Debt, for FY25 (or maybe till FY26).
- Historically 5x leverage is the peak, today it is 1.5X
- No further debt for any Capex. 145- 150 Crs for Knuckles, in total 180 crs will be spent via internal accrual.
- ~100 Crs will be taken as debt for AMW auto.
- Can pre-pay some debt next year.
Misc:
- Environment is competitive. Margin under pressure due to volume led discount
- Maruti break through for alloy wheel - Discussion are progressing well. Expected to have some news shortly
- Capacity of 4.8 Mil at cost of ~1000 Crs. More cost efficient due to Brownfield from existing 35 Acres
- Global size of Alloy wheel market 350 Mil. India is 9 Mil consumption
- Guidance - 4500 - 4600 Crs for this FY, 5100 - 5200 Crs for next
- Margin 244 Crs for H1 and to repeat the same for H2
- Disjointed Value and Volume growth explanation. Drop in realization for alloy wheels - LME has dropped and we have pass through clause.
- Overall alloy wheel has 37% market penetration, will move to 45% in India
- OEM export - discussion on with 2 customer. Testing and validation going on with 1 customer. 1 customer can get converted next FY
[ Very important trackable IMHO…]
Overall, this 7 Mil capacity at a very reasonable valuation (~150 Crs) by way of AMW acquisition is very positive for the company - more so when they are already hitting upper end of capacity utilization on existing sites. AMW may also be margin accretive being into Heavy agri/truck segment.
Alloy wheels expansion by 60% is another positive unfolding well. Is a brownfield with ~3x asset turn with better margin business. There is definite market traction and they are able to garner share both domestic and in export markets.
On the other hand, this call has moderated all expectations from new steering Knuckles foray - at least in medium term. Though there is synergy with current product basket however an 1.2x - 1.3x asset turn venture with say 12% - 13% EBIDTA margin funded by debt wont leave much money on table. Even the scale-up is not swift enough to compensate for - phase 1 scale-up itself is going to take next 1.5 - 2.0 years. May be little early to call this as small avoidable distraction?
Thanks,
Tarun
Disc: Invested
21 Likes
How much will the depreciation be qtrly after they inccur the whole capex?
Thanks for sharing Tarun.
One additional detail which was conveyed by the management during the concall was that the effective tax rate of the company will come down from current 33℅ odd to 25℅ in FY25. This is expected to have a positive impact on the EPS from FY25 onwards.
To put it in nos -Q2FY24 EPS would have translated to Rs. 3.80 from current Rs. 3.34 due to such reduction in tax rate - resulting into an EPS growth of 13℅
Thanks,
Souvik
Disc: Invested
7 Likes
Steel Strip wheels Q2 highlights -
Total plants - 04
Current capacity -
Steel wheels - 20 million +, by end of FY 24 - another 7 million wheel capacity would be added
Alloy wheels - 3 million + , by end of FY 24 - another 1.8 million capacity would be added
Employees - 7000 +
Last 5 yr revenue, PAT CAGR @ 15, 19 pc
Tata Steel holds 6.9 pc stake in the company
Nippon Steel holds 5.5 pc stake in the company
Domestic Mkt share ( steel wheels ) -
45 pc in PVs
53 pc in MHCVs
44 pc in tractors, 70 pc in OTR
30 pc in 2-3 wheelers
Sale contribution from steel wheels - 72 pc
Sale contribution from alloy wheels - 28 pc ( it was 3 pc in FY 19 )
Q2 financial outcomes -
Sales - 1134 vs 1081 cr
EBITDA - 124 vs 117 cr
PAT - 52 vs 55 cr
Volumes - 5.1 million vs 4.7 million
Cash and cash equivalents @ 44 cr
Capex spend for H1 FY 24 @ 190 cr. For full FY 24, expect capex spends @ 320 cr
Out of this, 190 cr are being spent on Capex of Alloy wheels capacity
Intensity of capex to reduce going fwd into FY 25,26
H1 export performance -
H1 exports volume @ 2.1 vs 1.5 million
H1 export sales @ 331 vs 294 cr
Trade receivables have increased in H1 due greater growth in export sales. Export sales have higher receivable cycles
Export customers, dialling down their Chinese imports and ramping up their India imports - a huge positive for the company. Expect alloy wheel exports to further pick up by next FY
Hopeful of getting alloy wheel orders from Maruti Suzuki. That should come as a nice trigger for the company
Uptick in the CV cycle is another tail wind for the company
Company setting up capacity of steering aluminium knuckles. To have a revenue potential of Rs 220-250 odd cr by FY 25. It’s an import substitute, no other manufacturer in India. This business can grow 5-10 times in next 5-7 yrs as industry shifts from steel to aluminium knuckles. Here, the margin profile should be similar to alloy wheels. Total capex for this to be around 200 cr. Out of this 50 cr odd to be spent this yr and the rest in FY 25
Alloy wheels is a high growth Mkt as more customers opt for alloy vs steel wheels
Current Debt on books at around 800 cr
Company has acquired AMW auto components for about 140 cr. Expecting a revenue of aprox 150 cr for FY 25. Should pick up further in FY 26. AMW auto components is into manufacturing of large steel wheels
Avg EBITDA margin difference between domestic alloy vs domestic steel wheel supplies is around 400 bps ( ie 4 pc ). For exports business, this margin gap is lower
FY 24 revenue guidance @ 4500-4700 cr odd with slight margin improvement in H2
Disc: holding, biased, not SEBI registered
9 Likes
Here is an interesting article on the alloy wheels market in India. Alloy wheels: A preliminary analysis in the Indian context | Team-BHP
TLDR
- Alloys are a key differentiator in the common segment (Tata, Maruti, Mahindra, Hyundai etc) for the top-end models, whereas it’s a basic expectation in the luxury segment (Merc, BMW, Porsche). Foreign companies in the common segment offer more variants with alloys than Indian companies.
- However, things are changing in the common segment with companies offering more variants with alloys.
- In the common segment, adoption is increasing in SUV and Sedan sub-segment whereas Hatchback is lagging behind.
With all of this, alloys market seems to only grow going forward.
7 Likes
Some brief notes from the management meet that I attended recently:
• Exports should be around 600Cr for the whole year
• Exports can kick in and ramp up the volume growth further – 1L in first half itself (40k in last year) – $300m+ size opportunity – we are looking to get 1-3% market share, if not more – huge opportunity size in exports and we are looking to grow along with the demand and market scenario that is there in front of us – all the domestic companies can be winners (including competitors) – European players losing ground – time for Asian players to be aggressive
• Even if the OEMs plan to shift 5-10% of their procurement from China – India may not even be able to serve it – that is the size of opportunity in front of us and Wheels India, Minda, etc.
• Expects revenue from knuckles to be around INR35-40 crores in FY25 (no revenues to be recognised this FY)
• Margins going forward can be around 11.2-13% - as the mix tilts more towards alloy
• Steel Wheels – Volumes are high but the growth in volumes is low
• AMW may take 5-6 months to become fully operational after Dec this year – focus will begin from CV Segment
• FY26 will be the year when AMW will meaningfully start contributing to the revenues
• No meaningful difference in margins in AMW segment – in fact, consolidated margins may be slightly lower for the next 2 years because of the high fixed cost – but the company is trying its best to not have an adverse impact on the existing business margins
• Can expect some good progress on the Maruti deal front in the next concall
• Company level ROCE should sustain above 20%
• Revenues should be around 4500Cr for FY24 and 5200Cr for FY25 (some changes can be there due to value changes due to RM price changes)
• Volume Growth should be 12-13% this FY and 10-12%+ for next FY
• 4W business is protected due to BIS and anti dumping duties – similar protection is not available for 2W
• 4W Segment – imports have come down dramatically from 50% earlier – not seeing it go back to those levels again
• Market share is most critical – our aim is to get more market share
Management seems to have a lot of clarity and confidence in the business and its growth potential. Really like the tone of the mgmt. Let’s see how it pans out!
Disc: Invested
20 Likes
SSWL Sales Volume Up by 14% yoy, in November 2023
Monthly Sales in Exports - (Grew by 344% yoy by Volume)
Monthly Sales in CV Wheels - (Grew by 22 % yoy by Volume)
52bac71b-f68d-4383-a288-d093fff2fd4a.pdf (334.1 KB)
8 Likes
I was going thorugh the insider trading data
I found SSWL mgnt itself is selling holdings.
Rajesh Trikha: Executive director of SSWL
Sold: 8,02,455 on 20-Dec
Naveen Sorot : CFO SSWL
Sold: 10,78,052 on 20-Dec
SUNENA GARG: Promoters
Sold: 7,92,35,280 on 14-Dec-23
Is something fishy ongoing ?
6,46,042 sale by promoter in August 2023 is just 0.41%
The recent sale is less than half of that. The promoter holds over 62% stake in the company. So this share sale need not be given much importance, IMHO.
3 Likes
Q3 FY24 sales is at 1100 cr vs Q3 FY23 sales of Rs. 938 cr. That’s a 17% jump. Although sequentially its down by 3%.
There is a de-growth is alloy segment which is supposed to be margin accretive.
Couple of Research reports for useful info
Steel Strips Wheels Ltd - Q2FY24 Result Update - 31102023_31-10-2023_12.pdf (721.7 KB)
638342793414708097_Steel Strips Wheels Ltd - Q2FY24 Result Update - SMIFS Institutional Research.pdf (1.1 MB)
2 Likes
