ValuePickr Forum

Sterling Tools : Fastener Making Company

Sterling Tools : MCap : 1200 Cr
Promoter Holding : 65% (70% last year) : Reduction due to some preferential Share allotment to Meidoh Co. and around 2% Stake Sale in open market by one of the Promoter.
No equity Dilution except Last Year Preferential allotment
D/E Around 0.14 ( It was above 1 few years back)

Established in 1979, STL is engaged in the manufacturing and marketing of high tensile cold forged
fasteners for the automobile industry. STL has three manufacturing plants located at Faridabad, Ballabhgarh and Palwal in Haryana and is in the process of setting up its fourth manufacturing plant, in Karnataka at an investment of Rs. 90 crore. The company has a total installed capacity of close to 45,000 MT per annum and is one the largest fastener manufacturers in India (After Sundaram Fasteners), catering to leading automotive companies in India and Tier-1 auto-component manufacturers in Europe. STL’s product portfolio includes fasteners, which find application in both automotive and non-automotive segments. In FY2018, STL entered into a business collaboration with the Japan-based fastener manufacturer, Meidoh Co. Ltd, which would enhance its design and development capabilities in the automotive fastener segment. Majority of the fasteners manufactured by the company are developed based on designs provided by the customers

Clients : Maruti , M&M , Tafe , Honda Motors , Ashok Leyland , Tata Motors etc

Financials :
Sales Growth 10 Yr = 11% , Profit Growth 10 Yr = 20%
Sales Growth 5 Yr = 10% , Profit Growth 5 Yr = 35%
Sales Growth 3 Yr =10% , Profit Growth 3 Yr = 30%
OPM Levels improved from 12-13% to around 19-20%

Pros :

  • Second largest player with a healthy share of business with leading OEMs across automotive segments

  • Recent business collaboration with Meidoh likely to strengthen STL’s product development capabilities and business expansion initiatives

  • Well-diversified presence across automotive segments including CV, PV, 2W and tractors, with only 35% of its revenues in FY2018 derived from CVs, which is its largest segment.

Cons :

  • High dependence on domestic market for revenues. deriving approximately 90% of its sales from the Indian market. Any downside in Auto Markets may impact the performance.

  • Limited product diversification with entire revenues derived from the sale of fasteners . It is a highly fragmented and competitive product segment, with presence of a large number of unorganised players.

Disc : I have no holdings as of writing the post. I came across this company and found No thread on forum so have created this. Have few questions too which i have posted below. I am currently understanding the Fastener Market. This post has most of the information taken from ICRA Reports.
This is a 1200 Cr Company. Another company where i initiated a thread some days back is a 100 Cr Company. Biggest Company Sundaram Fastener is a 10000 Cr Company. There are some well known investors who have investment in this company but have reduced some stakes recently.

Key Questions i am trying to figure out are :

  1. What can be the possible market for Fasteners ? How long it can grow ?
    There are lot of unorganised players despite that this company and other organised listed players have grown at 20% in last 10 Years.

  2. What are the threats to these companies from transition to EVs ?
    As per 2018 AR Management Discussion, “Internal combustion engines (ICE), which are used in most cars, have more than 2,000 moving parts, while an electric vehicle has about 20 resulting in fewer breakdowns”.
    Possibly it may result into lower requirement of fasteners. There is still no clear policy in EV and whether it will affect PV , CV or 2W or the entire industry in medium term.

Views Invited @hitesh2710 @ayushmit @suru27 @phreakv6 @deevee @dd1474 @basumallick and others !

2 Likes

Did anyone attend the AGM today? Could you please kindly share notes.

Thank you in advance.

Had a short conversation with Vaishali from Sterling tools (Company Secretary).
The slowdown in automobile sector is persistent with no revival seen yet.
Though the retails sales figures were positive in October 2019, retails forms a very small portion of their total sales and hence not much impact.

Did not mention the total market size of organized fasteners market but said that it is largely unorganized.

However, of the total organized market, Sundram has ~35% of total market share in terms of revenues while STL is at ~25-30%.
Assuming this to be accurate, total market size in revenue terms could be ~RS. 3200 cr.

Though both are operating in the same industry, Sundram has more presence in the South regions while Sterling has more presence in the Northern regions. Both have certain overlaps in western & eastern regions.

Sundram is more focused on commercial vehicles and has clients such as Ashok Leyland, M&M etc. On the other side, STL is focused on passenger vehicles & has clients such as Bajaj, Maruti, Honda, Hyundai etc.

The Bangalore facility was commissioned in July’19 & is operational albeit at lower utilization levels due to muted demand outlook & phase-wise ramp-up plans. Total capex including land cost was Rs. 95 cr. Things would come into perspective from next year onwards. Plant was mainly set-up to shift HMSI process.

There is a marginal decline in term loans. Sanctioned working capital loans are ~Rs. 70-80 cr of which hardly Rs. 10 cr is used.

Also, the company used to pay 35% tax earlier and have decided to shift to the new regime. This is expected to bring ~Rs. 6-7 cr savings p.a. for the company which a postive. Things will start to show up once OEM’s start giving orders, however it will take some time.

The stock has seen some buying in the last few days.
Combined deliverables % on both NSE & BSE has been above 50% daily for the last 1 week. Also, on 11/11/19 & 7/11/2019, there was a volume spurt of ~4x.

Deliverables % on 11/11/2019 on BSE was 67.86%.

Discl: Have a tracking investment in the company.

5 Likes

Sterling Tools in JV with Chinese company to make components for EVs
https://in.finance.yahoo.com/news/sterling-tools-jv-chinese-company-components-evs-052456765.html