Sterling Tools scrip may give 25% return in next one year
Sterling Tools Ltd is the second largest automotive fastener manufacturer in the country. It has a 40-year-legacy with three strategic located manufacturing facilities in Faridabad in Haryana and one in Kolar, Bangalore. The company offers a comprehensive product portfolio consisting of standard, chassis, special and engine fasteners. Sterling Tools caters to major OEMs across passenger vehicles, commercial vehicles, two wheelers, construction and farm equipment segments. The Indian auto industry has surpassed Japan to become the third largest auto market globally with a revenue of $222 billion and expected to grow and reach $300 billion in the next five years. The company posted Q4 consolidated financial numbers for FY 2023 with total income at Rs 213 crore up 25% from Rs 170 crore yoy. EBITDA increased by 30% to Rs 23 crore versus Rs 18 crore yoy while the profit after tax increased by 13% to Rs 8 crore over Rs 7 crore yoy. The growth in numbers has been predominantly driven by higher sales of utility vehicles, lowering of age group of purchasers who prefer innovation, high safety and superior technology along with improvement in the supply chain condition for semiconductor products. Two wheeler and passenger cars accounts for around 76% and 17% respectively of the total market share. The commercial vehicle industry grew by 29% in FY 23 supported by increased activity in road construction, mining, infrastructure and spending by both the central and state governments on improving the e-commerce sector. On the other hand, the two wheeler segment grew at a rate of 9% and volumes are expected to rise in FY 2024 on the back of growth momentum for premium bikes and steady improvement in the rural economy on increasing minimum support prices for key crops. In the fastener industry segment, the revenue ratio for FY 23 is about 20% for two wheelers , passenger vehicles is about 24% , commercial vehicles is around 25% , farm equipment is around 11% while the after market is around 15%.Another data point to look at is while the commercial vehicle industry revenue grew by 29%, the company's revenue grew by 62%. Similarly, while the two wheeler industry grew by 9% during the last year, Sterling grew by around 36%. The farm and tractor equipment segment along with the passenger vehicle also went up by 36% and 35% respectively in terms of revenue over the last financial year compared to the industry aggregate.Sterling Tools grew faster than the industry in all segments of the business and is expected to do well on the back of higher sales, increasing EBITDA margins, diversification in the Electric vehicles market and softening of commodity prices. Fund managers and analysts are quite bullish on the Sterling Tools scrip and expect it to appreciate by 25% from the current market price of Rs 350 levels in the next one year time frame.Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.
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