Steel Strips Wheels Q3 Results Review - Near Term Hiccups, Long Term Thesis Intact: Dolat Capital

Dolat Capital Report

Steel strips wheel Ltd.'s Q3 Revenue de-grew 2.1% QoQ due to weaker volume of domestic tractor and alloy wheels, offset by strong revenue of exports. Ebitda margin contracted 47 basis points to 10.5% due to increase in the raw material cost and higher freight charges due to ongoing red sea disruption.

Management expects growth from steel wheels to remain at ~3-5%, while indicating a strong growth from the alloy wheels at~20% for FY25. Meanwhile company also indicated near term challenges in export, resulted in weaker revenue in Q4

We expect earnings to grow at compound annual growth rate of 16% from FY23-26E led by

1. Increasing presence in the high margin alloy wheels private vehicle segment,

2. rising share of exports (commence alloy wheels export,

3. incremental revenue from new products aluminum knuckles, and

4. strong return on capital employed plus 18%.

We cut earning per share estimates 7/10%. For FY24/25E due to increase in capex guidance and uncertainty in the exports business. Maintain 'Buy' with target price at 330 (16 times September 25E EPS).

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