SSWL stock may give profits to long-term investors

Steel Strips Wheels Ltd (SSWL) headquartered in Chandigarh is a leader in designing and manufacturing of automotive wheels, both in the alloy and steel categories. The company caters to blue-chip clients around the world like BMW, Tata Motors, Jaguar, Renault Nissan, Mahindra, Volkswagen, Kia, Ford, Honda, Hyundai, Maruti Suzuki, Ashok Leyland, JCB, etc. The company posted one of the best financial results in its history for the financial year 2022. During the Q4 period of FY2022, the company completed sales of Rs 1063 crore as against Rs 700 crore for the last equivalent Q4 of 2021 posting a growth of around 52%. The EBITDA climbed to Rs 117 crore in Q4 as against Rs 92 crore, while profit after tax jumped by 10% at Rs 44 crore. For the full financial year 2022, the company had a total turnover of Rs 3560 crore as against Rs 1749 crore for the earlier year. This was on the back of higher sales of wheels, viz. 17.89 million as against 13.36 million wheels for the year ago period. This major growth in sales was carried by huge exports jumping by 206% from Rs 829 crore for FY 22 as against Rs 271 crore for FY 21. On the margin front, analysts explain that there has been a higher escalation in the price of raw materials such as steel, which went up from Rs 38 per kg to around Rs 80 per kg. Similarly, aluminium prices have moved up from Rs.160 per kg to Rs.320 per kg in the last one year. Since these escalations in raw material prices are passed on to the customers, the turnover goes up dramatically but the margins remain the same.
So if one looks at from a statistical method point of view, this continues to compress the percentage wise margins. If one looks at a higher turnover and margins remain more or less the same, there is no impact even without higher raw material price increases. Though the margins were at around 14% for Q4 FY 22, they were around 13.2% for the full financial year 2022. The management expects commodity prices to stay elevated for the next one year and only if raw material prices decline by around say 25%, then the overall margin will go up to 13%. To gain and maintain competitive edge in technology and the markets, SSWL has built strategic partner ships with key players both in the domestic and international level. Partnerships with them have helped pool knowledge, resources, diversify product lines and help establish a global presence for the company. Tata steel supports the company in areas such as supply chain management, new grade development, supply of steel etc. Tata steel holds a 7% equity stake in SSWL. Nippon Steel & Sumitomo Metal Corporation , Japan have also invested in SSWL by holding a 5.5% equity stake and supports the company bringing international expertise in steel quality and newer technology expansion. Similarly, Kalink Co, South Korea has a strategic alliance holding a minor 1.35% stake and is a major technical partner with SSWL. The company has also prepaid debt of around Rs 120 crores during the last FY bringing down the finance cost substantially. This would be visible in the current financial year 2023 balance sheet. The SSWL stock is currently quoting at Rs 730 on the bourses and can be accumulated by long-term portfolio investors for profitable gains.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.