SSWL started commercial production from 1991. The company is armed with the latest know‐how, manufacturing automobile wheel rims at its state‐of‐the‐art manufacturing unit at Chandigarh, Chennai & Jamshedpur.
SSWL’s product range comprises wheels rims for Passenger cars, Multi utility vehicles, Tractors, Trucks, OTR Vehicles as well as Two Wheelers.
SSWL currently has two production facilities with a total capacity of 10 million wheels p.a. The company’s facilities are located in Dappar (near Chandigarh) and Oragadam (near Chennai). SSWL’s third facility, which is designed to produce only truck wheels, is currently being set up in Jamshedpur and will be commissioned in 2010. It will dispose of an initial capacity of 1 million wheels. Over the years company has expanded its client base and currently caters to all major Indian
automakers.
Dappar Plan (Punjab)
SSWL’s mother plant is located at Dappar (in Punjab) having an annual capacity of 7.5 million wheels. The company manufactures wheels for Cars, Tractors, and Trucks from the plant. The company currently has 5 Rim Wheel manufacturing machines at this plant. On an average daily 15000 wheels are being manufactured and transported to Maruti Suzuki Ltd from this plant. The company plans to expand the capacity by 0.5 mn to 8 mn wheels during the current year.
Chennai, Tamil Nadu
The Chennai plant is having an annual capacity of 2.5 million which can manufacture only car wheels. Currently, the company supplies car wheels to many auto majors from this plant including Maruti and Renualt. SSWL has is planning to expand this facility to 5 million wheels by Feb 2011.
Jamshedpur, Jharkhand
SSWL has established a new facility at Jamshedpur, Jharkhand at a cost of around
Rs. 140 Crs. The company’s newest facility is currently undergoing a Dry run &
commercial production is expected to begin from the month of July. The Jamshedpur plant is located close to the Tata Motors plant and has an annual capacity of 1 million Truck wheels. SSWL has already contracted Tata Motors to sell majority of its capacity. The company plans to sell 0.4 mn wheels from this plant in FY 2011 which is expected to contribute approximately Rs. 110 Crs to the company’s top‐line. SSWL plans to increase the capacity to 2 mn wheels by June 2011.
Investment Rationale
• Aggressive capacity expansion plans: SSWL had consistently gained market share from its competitors with competitive advantage. Further capacity expansion from 10 mn wheels to 15 mn wheels over next couple of years will provide significant growth opportunities to the company.
• Strong order book: SSWL has an order book of 10.4 mn wheels worth Rs.780 Crs to be executed in FY 2011. This provides near term revenues visibility.
• Increasing exports to boost revenues: Apart from domestic customers, the company is increasing its focus on international players. Recent product approvals and order pipeline will drive the export growth at a rapid pace.
• Change in product mix to enable margin expansion: Sales of high margin products like trucks and tractors wheels through Jamshedpur and Dappar plant will increase the operating margin of the company.
Stock Valuation & Recommendation
We believe that SSWL’s net sales will grow at a CAGR of 41.4% over a next two years whereas net profit is expected to grow at a higher CAGR of 76.7% during the same period, on account of increase in sales of high margin products. We expect the company to earn an EPS of Rs. 20.91 in FY 2011 and Rs. 31.71 in FY 2012. At the CMP of Rs. 133 per share, SSWL is currently trading at a PE of 6.36x FY11E and 4.19x FY12E EPS and looks very attractive. Based on our EPS of Rs. 20.92 for FY 2011 and a target multiple of 12.0x we arrive at target of Rs. 250. Consequently, we recommend a BUY rating on the stock with a target price of Rs. 250, indicating a potential upside of 88%.
Download here the detailed stock report published by stock investment research team of Nirmal Bang Securities.
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