Multibagger stock: Steel Strips Wheels shares record over 440% growth in 3 years; is there more upside left?

From a trading price of ₹50.60 apiece three years ago, shares of Steel Strips Wheels (SSWL), a prominent player in the automotive wheel manufacturing sector, have strengthened 442% to trade at the current price of ₹274.30 apiece. In the same period, the Nifty Smallcap 100 index gained 116%.

The stock experienced significant gains in the calendar year 2021, soaring by 241%. However, in the subsequent year, the pace of growth decelerated, resulting in a decline of 7.46%. Remarkably, in CY2023, the stock rebounded robustly, concluding the year with a massive return of 63%.

The company designs, manufactures, and supplies steel wheel rims and alloy wheels for a wider range of domestic and global automobile makers. It currently has a total manufacturing capacity of 23.5 million wheels, divided between 20 million steel wheels and 3 million alloy wheels.

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The company supplies to all the major PV and CV OEMs, such as Maruti Suzuki, M&M, MG, Hyundai, Honda, Kia, JLR, Ashok Leyland, Tata Motors, and Escorts.

In August 2023, the company received the first export order for OTR wheels for an OEM in the Oceania market. This marks the entry of SSWL into a new segment and geography, which compliments its strategy to increase its presence in the global OEM market of OTR steel wheels.

The company is expanding its alloy wheel capacity by an additional 1.8 million units at Mehsana in 4QFY24. Also, the company will add an incremental 7 million in steel wheel capacity via the acquisition of AMW Auto Components through the NCLT route.

The DGTR has also recently recommended anti-dumping duty on alloy wheel imports from China for the next 5 years, which will further help to improve the realisations.

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Further, the company is transitioning to manufacturing aluminium knuckles, which replace the steel knuckles used in the alloy wheels. Aluminium knuckles currently have only 1% penetration in India and provide a huge import substitution opportunity, said domestic brokerage SBI Securities in its latest report.

Healthy Performance

For the December ending quarter (Q3 FY24), the company reported decent performance, reporting a consolidated net profit of ₹60 crore, an improvement of 36% compared to a net profit of ₹44 crore.

The company reported consolidated revenue from operations of ₹1,110 crore, up 18% YoY, led by higher overall volumes and a higher ASP. Volumes during the quarter jumped 13% YoY to 46 lakh units (both alloy wheel and steel wheel).

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It reported EBITDA of ₹117 crore, up 8% YoY, and EBITDA margins of 10.5%, down 100 basis points YoY (47 basis points QoQ). This was led by higher personnel costs and lower gross margins, which were partly offset by lower other expenses.

Positive Outlook

Following the company's Q3 performance, domestic brokerage firm Axis Securities maintains its 'buy' rating on the stock based on a richer product mix (alloy wheels, exports, CV), capacity additions, and improvements in EBITDA/wheel in FY25E and FY26E. It has a target price of ₹325 apiece.

By strategically acquiring the AMW plant to cater to future demand in the Commercial Vehicle (CV), Off-The-Road (OTR), and Tractor segments, coupled with an expanding order book for alloy wheels, product diversification into Aluminum (AL) knucklers, and the ongoing expansion of the Two-Wheeler (2W) electric motor hub-wheels business, Steel Strips positions itself for growth. The company remains dedicated to meeting export demands from the United States and Europe, according to the brokerage.

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Earlier, SBI Securities also maintained a 'buy' rating on the stock with a target price of ₹324.70 apiece. Likewise, another brokerage firm, ICICI Direct Research, also assigned a 'buy' rating to the stock by setting a target price of ₹340 apiece, citing the company's strong growth in the alloy wheel segment.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.