Here is first of the four mid cap stocks investment ideas belonging to sectors that are emerging as out-performers in the medium term
Steel Strips Wheels BSE: 513262 NSE : SSWL (Sector: Auto ancillary)
SSWL is a leader in designing and manufacturing of steel & alloy wheel rims to a broad customer base including Tata Motors, BMW, Honda, Suzuki, among others
The company manufactures steel wheel rims for Passenger cars, Utility vehicles, 2/3 wheelers, Tractors, Light/ Heavy commercial vehicles, and has of late emerged as a strong player for Alloy Wheel Rims for Passenger Cars
The company is expanding its capacity aggressively to become largest alloy steel rims manufacturer in the country.
The Company has strategic investments from giants like Tata Steel (holds 6.9% stake) and Nippon Steel & Sumitomo Metal Corporation (NSSMC), Japan (5.4% stake) to gain technical expertise with these collaborations
Click here to see full shareholding pattern
Having a market capitalization of Rs 2725 Cr with TTM revenues of Rs 3898 Cr (Price to sales ratio at 0.7 times) and good ROE of around 24%, the company is attractively priced currently for a medium to long term investment.
Over the last 5 years, the company has reduced debt from a level of around Rs 1100 crores to about Rs 680 crore currently thus bringing down its debt to equity ratio at a easily manageable level of 0.7. The interest coverage ratio of the company is at a highly comfortable level
SSW currently has a price to earning (P/E) ratio of only 13.5 which is quite reasonable and way below its historical median ratio of 18. Enterprise value (EV) to EBIDTA at 7:0 times, makes its valuations still more attractive at the current price of Rs 871.
The downward risk to the company’s share price could be on account of a slow down in the auto industry or in the overall economy as the company has created large capacities incurring capital expenditure recently. Further, a portion of promoters’ holdings are pledged.
Considering the foregoing, we recommend a Buy for SSW at the price of ₹870 for a medium / long term upside of 50% at ₹1305
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Disclosure:
The report above has been written sourcing data, information and facts as reflected in the company’s Annual Report, Presentations, Announcements, fundamentals, Stock Market price and volume data and analysis / interpretation there-of
