Exports bottomed out, Better product mix led by increasing share of premium products!
Q3FY25 PAT is nearly in line with our estimates. The company’s revenue decline of ~3% YoY was majorly led by decline in realization per wheel, although volumes remained flattish. EBITDA per wheel improved by ~1% YoY led by lower other expense. We anticipate ~4% CAGR growth in EBITDA per wheel for the next 2 years led by better product mix & higher exports. Management has cut its export revenue guidance to Rs5.5-6bn (vs earlier Rs6-6.5bn) led by continued weakness in US & EU markets, although, the worst is now behind & US markets will outperform other export markets on the back of favourable new government policies, higher tariffs on China products, no election uncertainity & improved demand conditions. On Aluminium Knuckles business, management guided for revenue of Rs1.05-1.15bn by FY27E with double-digit margin. Overall, we expect total volume CAGR of ~6% from FY25E-27E led by significant growth in alloy wheels exports, long-term agreements signed with several tractor OEMs, identification of new growth markets for OTR, the initiation of a high-margin knuckle casting project for a few OEMs, and consistent growth in export steel wheels. Overall, debt will reduced by Rs1-1.2bn per annum & further debt reduction if cash flows are better. Led by improved product mix on the back of rising alloys wheel contribution, we anticipate the EBITDA margin to increase from ~11.0% in 9MFY25 to 11.3% by FY27E. Additionally, prepayment of debt is anticipated starting H1FY26E due to lower capex requirements and high FCFs. We recommend a strong BUY, with a revised target price of Rs 280 per share.
Q3FY25 –Nearly in-line stable overall performance, export guidance cut for FY25
Operational performance was largely in line with our expectations. EBITDA margin remained broadly stable at around 11.0% (+20bps higher than our estimates).
Exports remained laggard led by continued weakness in US & EU markets, although it is expected to witness improvement from the coming quarter led by demand uptick, uncertainty of elections largely behind in US market & tariff imposition on China.
Management has cut its export revenue guidance from earlier Rs6-6.5bn to Rs5.5-6bn. We anticipate exports revenue to be largely at the lower band of the guidance for FY25E.
Improvement in EBITDA per wheel led by higher share of premium products
EBITDA per unit grew by mere ~1% to Rs 255 in Q3FY25 led by better control on cost & better product mix and efficiencies.
We expect EBITDA per unit to rise to Rs 258 in FY26E and Rs 271 in FY27E (excluding Knuckle Casting business, which itself is good mid-teens margin business).
Alloys, Exports and Off-road segment should support in improving EBITDA per unit in the foreseeable future. On a conservative basis, its high-margin alloy wheels’ revenue contribution is projected to increase from ~28% in FY24 to ~32% in FY27E. Similarly, exports to see a dip in FY25E to 13.3% of revenue before increasing to 14.0% level by FY27E.
Additionally, mid-teens margin businesses such as Tractors, OTR, and the start of Knuckle casting revenue will further enhance value.
Alloy domestic growth is projected to grow at ~9% CAGR from FY25E to FY27E due to premiumization, with alloy exports expected to grow at double-digit rate (33% CAGR on a low base).
SSWL is targeting existing aftermarket steel wheel customers for cross-selling alloys in international markets, indicating strong growth potential. The company has signed long-term agreements with several tractor OEMs and identified new international markets for the OTR segment, supporting growth and margins.
Steel Strips Wheels Ltd – Q3FY25 Result Update – SMIFS Institutional Research
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