Hello Sir,
Hope you are doing well.
I was recently reading about Sterling Tools Ltd. The company is the 2nd largest automotive fastener manufacturer in India.
However, what I found interesting is that it has a subsidiary – SGEM. The contribution from the same was 0 till FY 21 and at the end of FY 24, it accounted for 35% of the consolidated revenue.
What SGEM does – It is one of the largest Motor Control Unit (MCU) suppliers for Electric Vehicles in India.
Below, we have shared our notes from the Q4 FY 24 con-call of the company to understand the outlook for the business.
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Sterling Tools – Notes from Q4 FY 24 concall
– Introduction
- Indian automobile industry demonstrated resilience and recorded a satisfactory performance in FY ’24
- The industry showcased a growth of 12.5% in domestic sales compared to the previous fiscal year
- The passenger vehicle segment led this growth trajectory. With overall sales touching nearly 5 million units, including 4.2 million in the domestic market
- Our 100% owned subsidiary Sterling Gtake E-Mobility (SGEM), the largest motor control unit manufacturer in India reported remarkable performance
- The revenue generated by SGEM grew from INR 174 crores in FY ’23 to INR 323 crores in FY ’24
– SGEM
- We continue to make progress towards our stated goal of 10% to 12% EBITDA margins in this business in a steady state
- We averaged about 30% gross margin
- FY 24 volume – So about nearly 400,000 units for the year
- As of today, everyone that we’re selling to for that model, we are the single source
- As of today, we are consistently producing more than 2,000 units a day. That takes us to about 600,000-unit capacity for the full year
- The expansion is largely in place, but there is still some, I would say, finishing touches that need to be executed on that plan
- We still hope to see about 30% growth in this industry in the coming year
– Fastener
- We see with the capacities we have in place, including our Bangalore facility and some maintenance capex, we don’t need substantial capex in the fastener vertical
- I think we can reach a revenue of between INR 750 crores to INR 800 crores with the capacities and the maintenance capex coming through at Bangalore plant
- Why low growth in FY 24 – If you look at the segments of commercial vehicles have been flat or probably slightly negative. Farm equipment has been negative
- John Deere is roughly 30% negative in revenue and Mahindra itself is about more than 11% negative in volumes as well
- Volume/Value growth (similar) – 7% in PV, 21% in 2-wheelers. In commercial vehicles, we were negative 11% and farm equipment we were negative 17%
- I think it’s a question of customer portfolio profile. We need to strengthen that in PV and the 2-wheeler segment, which is what we are working on. On the CV side, we work with all the customers in India
- Revenue share – Passenger vehicle for FY ’24 was 27% of the total, 2-wheelers 24%, commercial vehicles 22%, farm 13%, the retail and aftermarkets 12% and 2% export
– MOU
- We are excited to announce that Sterling Tools has entered into an MOU with South Korea’s Yongin Electronics to establish an EV components facility in India
- The strategic partnership is anticipated to generate business of around INR 200 crores per annum in the next 5 years
- Our partnership will predominantly be for the automotive space to begin and specifically in the EV space for components like chargers, both onboard and off-board chargers, battery management systems
– ESOP Cost
- The INR 2 crores is the impact of FY ’24 is only for the last 2 months
- FY 25 – the next impact will be the biggest one – it should be around INR 10 crores to INR 11 crores
- Total INR 22 crores to INR 23 crores impact over 4 years
– CAPEX
- Overall, we’ll be investing around INR 60 crores next year. This is only for existing businesses. That’s fasteners and motor control unit
(End)
Disclaimer: This is not a recommendation to buy/sell Sterling Tools. The securities quoted are for illustration only and are not recommendatory.
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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