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Steel Strips Wheels Ltd (NSE: SSWL) | Research Summary

Steel Strips Wheels Ltd. (SSWL), established in 1985, has been manufacturing steel and alloy wheel rims for various segments of the automotive industry since 1991 and is a leading supplier to Indian and global automobile manufacturers.

The product range includes steel wheels for 2/3 Wheelers, passenger cars, multi-utility vehicles, tractors, trucks and OTR vehicles and alloy wheels for passenger cars. It has manufacturing units at Dappar (Punjab), Oragadam (Chennai), Jamshedpur and Saraikela (Jharkhand) and Mehsana (Gujarat) with a combined capacity of 235 lakh bikes.

SSWL is set to expand its alloy wheel capacity to 40 lakh by FY23. In FY22, approximately 80% of its sales were steel rims and 20% alloy rims.

Steel Strips Wheels Ltd (SSWL) holds a leading position in the steel wheel segment with an overall market share of close to 50-55%, while its share in the alloy segment has increased to almost 33%. Demand remains strong and after expanding its steel wheel capacity in FY22, it is set to expand its alloy wheel capacity in FY23.

Management is more focused on alloy wheels and export segments, both of which are higher margin segments, and expects these segments to contribute close to 50% of sales over 2-3 years from 43% in FY22.

SSWL has already announced a plan to resolve the acquisition of AMW Autocomponent (AACL) as part of the company’s insolvency resolution process, which was approved by AACL’s creditors’ committee on September 21. Healthy offtake of increased capacity will remain key to increasing profitability and return on capital employed, as well as reducing debt.

Vehicle demand to witness modest growth Following the prolonged impact of several unprecedented factors, the Indian automobile industry is optimistic about achieving double-digit growth in the current fiscal, according to market leaders. Driven by strong consumer demand and the need for personal mobility, FY23 is expected to be a good year for the industry.

SSWL was selected as one of the recipients of the Component Champion incentive program. The Component Champion Incentive Program is a ‘sales value linked’ scheme that applies to high tech vehicle components, knockdown/semi-knocked kits, two-wheeler, three-wheeler, passenger vehicle, commercial vehicle and tractor components. , etc.

SSWL is looking to enter the E-motor business for 2W through a tie-up with a foreign player where the magnitude of the opportunity will be huge in the coming years. The company envisages offering it as a bundle along with bikes and will be the only player in India to initiate this move.

SSWL is winning significant orders for the aftermarket for trucks and trailers in the US and the caravan market in the EU, driven by the economic recovery in these regions. Fluctuations in rupee against USD and Euro could affect its profitability. The volume of exports could also be affected by economic setbacks in Europe.

SSWL had strong operating cash flows in FY22, which should continue in the coming years. The company used the cash to reduce its term debt by almost 100 cr and plans to repay a similar amount in FY23. The company plans to expand capacity at its alloy wheel plant in Mehsana from the current 3.0 million wheels to almost 4.0 million wheels annually in fiscal year 2023-24.

With continuous development in the Indian mobility Industry space, a healthy and diversified position, efficient execution by the management and a lean balance sheet we can expect a healthy upside movement in Steel Strips Wheels Ltd (NSE : SSWL).

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