Let the Wheels Spin
Investment thesis on Steel Strips Wheels Ltd
1. To Summarise -
At ₹ 223 a share (m‑cap ≈ ₹ 3,500 Cr), the stock trades at 0.8 × sales and 6.6 × FY24 EBITDA, yet SSWL is India’s only wheel maker with installed capacity in both steel and alloy wheels (24 Mn + pa) and a live export book to 30 countries. FY24 saw record turnover (₹ 4,357 Cr) despite a tepid PV cycle; alloy wheels already form 28 % of revenue and carry ~400 bp higher margin. If management executes its alloy‑capacity ramp (to 4.8 Mn wheels FY25E) and exports revert to the historical 20 % share (vs 15 % FY24) EBITDA could break through the 12 % band, giving a base‑case 15 % IRR over three‑five years with rerating optionality. Screener Assettype Images
2. Business Overview
3. Five‑Year Financial Snapshot
*FY20‑21 EBITDA & CFO reconstructed from annual reports; all subsequent years from Screener / company presentation.
†Includes ₹ 480 Cr one‑time other income (land sale); normalised EPS is ~16.8. Screener
4. Normalised Earnings Expectations
Revenue CAGR 10 % FY-24→27E (steel 7 %, alloy 25 %, knuckle/exports >25 %)
EBITDA margin lifts to 12 % as alloy mix hits 35 %, Bhuj CV wheel line hits 70 % utilisation, and knuckle plant contributes by FY-27 E.
Sustainable NOPAT c. ₹ 350 Cr; maintenance cap-ex ₹ 150 Cr; WC days steady near 42.
5. Valuation – DCF & Sensitivity
Implied fair value/share in the base case = ₹ 286 → 28 % upside to CMP ₹ 223.
6. Unit Economics – Steel vs Alloy FY24
Every 100 bp mix shift from steel to alloy lifts consolidated EBITDA margin by ~25 bp.
6A. FY24 Revenue & EBIT Stack
7. Industry Structure – Porter 5 Forces
Net: scale + alloy competence are durable moats for SSWL. Business News Today
8. Value‑Chain Mapping & Concentration
Customer concentration risk moderate: no single OEM >18 % sales.
9. Strategic Investments & Optionality
10. Peer Comparison (FY24)
*Minda Kosei FY24 numbers from parent Minda Corp filings. Business News Today HT Auto Screener
11. Mental‑Model / Catalyst/ Triggers
13. Key Risks & Mitigation
15. Replacement‑Cost (Economic Moat) Analysis
Replacement value per share ≈ ₹ 178 → CMP is 1.25 × RC, attractive for a tier‑1 auto ancillary.
16. Forensic Quality Screen (FY20‑24)
No red‑flag Related Parties Transactions; auditor unchanged since FY19.
17. Growth‑Efficiency Dashboard
18. Management Quality & Governance
Execution: delivered every capacity project within 5 % budget since 2017.
Capital allocation: no equity dilution in 10 yrs; dividend payout 2 – 8 %.
Governance: zero SEBI penalties; 4 of 10 directors are independent; promoter pledge is nil
Overall score 4 / 5. (India Ratings ‘AA‑/Stable’) NSE India Nsearchives
How I’m imagining the bet -
Thesis: SSWL is morphing from a commodity steel‑wheel maker to a balanced steel+alloy supplier with growing export heft. The market has yet to pay for this mix shift. Balance sheet is geared but serviceable; once Bhuj is stabilised leverage will fall and FCF should accelerate.
P.S. When I started looking at this in March, it was trading between 165-180; it would have been a great candidate then with added ~20% margin of safety over 220+ CMP
DISCLAIMER: I AM NOT A SEBI REGISTERED ADVISOR OR A FINANCIAL ADVISER. ALL THE VIEWS ARE FOR EDUCATIONAL PURPOSES. I MAY OR MAY NOT HAVE INVESTED IN THESE STOCKS. PLEASE DO YOUR DUE DILIGENCE YOURSELF. THIS IS NOT A STOCK RECOMMENDATION.