Sharda Motors is a debt-free company that manufactures and assembles auto components and white goods components. The company is a global leader in the production of Exhaust Systems, Catalytic Converters, Independent Suspension, Seat Frames, and Seats, among other things.

SHARDA MOTOR INDUSTRIES

Current Market Price on the date of suggestion-: 764 Rs

Founded in 1986, Sharda Motor Industries Ltd (SMIL) has scaled to numerous highs in the automotive industry. The latest techniques, design, equipment and modern manufacturing which is highly efficient, organized and structured in India, we are making new grooves in this area, adding excellence and technological expertise.

The R&D facility opened in 2010 in Mahindra World City, 45 kilometres from Chennai International Airport. It is a cutting-edge laboratory that can develop, test, and certify exhaust systems for passenger vehicles, commercial vehicles, and non-automotive applications. The R&D Center is fully equipped to meet various emission standards such as BS4, BS6, and Tier 4. The management team and engineers are actively working with premier universities and institutes to create future emission and NVH solutions.Company is focusing its future innovation programs on

Light weighting, Cost Reduction & Modularity .

Sharda Motors today is the market leader in manufacturing of Exhaust System, Catalytic Converter, Independent Suspension, Seat Frames, Seat Covers (Two Wheelers & Four Wheelers), Soft Top Canopies, and Pressed part- White goods products.

Business products

Emission Control (Exhaust System)

The exhaust system gathers exhaust gases from the cylinders, eliminates dangerous chemicals, decreases noise, and releases the purified exhaust gases at a safe distance from the vehicle’s passengers. Depending on the engine, the exhaust system may have one or two channels.

Sharda motor Industries is market leader in this category. Various types of Exhaust systems manufactured by Sharda motors are as follows.

Suspension System

Suspension is the system of tyres, tyre air, springs, shock absorbers, and linkages that connects a vehicle to its wheels and allows them to move relative to one another. Suspension systems must support both road holding/handling and ride quality, which are incompatible. A car suspension’s goal is to maximise the friction between the tyres and the road surface, to offer steering stability with good handling, and to keep the occupants comfortable. Suspension would be unnecessary if a route was totally level with no imperfections. However, as we all know, roads in India are far from flat in the majority of areas. Sharda Motor has expertise in this arena with its world-class manufacturing processes.

Seat trim & Seat frames

Sharda Motor was the India’s first car seat trim manufacturer. Various products manufactured under this category include.

Except for Maruti, SMIL has a 30 percent market share in exhaust systems in the domestic PV sector, supplying to practically all major OEMs. ExMaruti owns 60% of the company. It also serves key tractor makers like as Escorts, TAFE, and Kubota, as well as CV players such as Tata Motors, Ashok Leyland, and Force Motors. Furthermore, the firm sells non-automotive players (for genset applications) like as Cummins, Carriers, and others. Tenneco, Faurecia, JBM, and Mark Exhaust are the other significant participants in the Indian exhaust system industry, in addition to SMIL.

PIE CHARTS

In the CV category, SMIL has a lower market share of 10-20% due to the demand of advanced technology, which MIL now has as a result of the recent JV, and this might lead to a bigger market share in the future.

Clients

Sharda Motor is a pioneer in vehicle innovation, providing tailored comfort while utilising cutting-edge technology. Sharda Motor, founded on operational excellence, provides superior automotive components to the country’s premier car and engine manufacturers. 

JV with Eberspaecher Exhaust Technology

SMIL created a 50:50 joint venture with Germany-based Eberspaecher Exhaust Technology International in FY19 to produce commercial vehicle exhaust systems in India (SMIL had made an investment Rs 37.5cr as of March 2021). The JV creates, manufactures, and distributes exhaust aftertreatment systems for Indian vehicle manufacturers that fulfil the most recent BS-VI standards. The JV’s second factory in Pune had begun commercial production.

The JV recorded a loss of Rs 23.1 crore on a revenue of Rs 140 crore in FY21, as CV sales were hampered by the economic recession, the Covid pandemic, and chip scarcity. It reported Rs 67cr in revenue in H1FY22. However, management expects faster-than-industry growth in H2FY22 as the economy recovers and CV sales increase.

The Eberspächer Group of Companies is a global automotive supplier with 80 facilities in 28 countries and a 2020 revenue of Euro 4.9 billion. It delivers worldwide expertise to the local market. With a 75 percent market share in Europe and a 50 percent market share in the United States, the firm is a segment leader in developed nations.

Eberspaecher JV, Sharda motor industries is currently operating at 40% to 50% capacity utilization. 

Sharda Motor Industries JV with Kinetic Green Energy & Power Solutions

Sharda Motor Industries and Kinetic GreenEnergy & Power Solutions, a Kinetic Group firm, signed a joint venture (JV) agreement in June 2021 to develop Battery Packs with Battery Management Systems (BMS) for electric vehicles and stationary applications.

The JV business will be responsible for the design, development, and assembly of lithium ion battery packs, as well as the BMS. The company’s primary focus will be on developing battery packs for India’s fast rising electric car sector as well as other segments of energy storage applications.

For this purpose, the business has entered into a technological relationship with the Indian Institute of Technology, Madras, India’s leading academic and research institution. The Centre for Battery Engineering and Electric Vehicle (CBEEV), a research and development centre at IIT Madras, will provide the JV with technology for Li] ion battery energy storage for electric two-wheelers, three-wheelers, and other small electric vehicles under the terms of the technical collaboration agreement. IIT Madras technology includes improved thermal designs to withstand harsh temperatures in India, mechanical designs to manage vibrations caused by variable road conditions, and a Battery Management System designed by CBEEV IITM with Indian road conditions in mind.

The JV, in which Sharda Motor will retain the bulk of the shares, will establish a cutting-edge manufacturing plant in Pune and is projected to be operational by the third quarter of fiscal year 23.

Why would the OEMs look at Sharda Motor Industries kinetic energy-based lithium‐ion battery versus others? 

One intriguing issue posed to management was what distinguishes its Lithium ion battery from that of other firms such as Exide, Amara Raja, Toshiba, Lucas, and TVS, where many individuals have joined up for the PLI scheme. Some of the above-mentioned firms were venturing into power cell manufacture, whereas Sharda Motor was venturing into the assembly industry, which is unaffected by chemistry, evolution, or technology.

So, the company’s thinking is that it wants to be more asset-light in the battery assembly industry and use this opportunity with its anchor client to create various other products that its R&D system is working on right now.

Financials

For Q3FY22

• Revenue was marginally lower by 1% versus Q3 FY21, with the semiconductor shortage affecting the demand. Further on a sequential basis compared to Q2 FY22, our revenue was marginally lower by 1.5%.
• EBITDA, including other income, stood at INR 68 crores in Q3 FY22 as against INR 57 crores in Q3 FY21, a growth of 19%. 
• EBITDA margins, including other income, were 11.7% in this quarter as compared to 9.7% in the Q3 of FY21.
• Our PBT margins rose to 9.9% in Q3 FY22 as against 7.6% in Q3 FY21. During the quarter, the share of loss of JV and Associates was INR 3.7 crores versus a loss of INR 2.5 crores in the Q3 of FY21.
• Consolidated profit after tax, including the JV profit or loss for Q3 FY22 was INR 39 crores as compared to INR 31 crores of Q3 FY21. 

For 9 months ended Dec 2021

• Revenue for the 9 months FY22 grew by a solid 45% to INR 1,637 crores against INR 1,132 crores in the previous year’s nine months. 
• EBITDA was INR 185.4 crores as against INR 92.7 crores of FY21 9 months, a growth of almost 100%. 
• EBITDA margins, including other income, was 11.3% in nine months, FY22 as compared to 8.2% in the nine months FY21. 
• The share of loss of JV and Associates was a loss of INR 10 crores versus a loss of INR 5 crores nine-month FY21. This was due to the severe impact on CV volumes during the year. 
• Consolidated profit after tax, including the JV profit or loss for the nine months FY22 stood at INR 105 crores against INR 41 crores in the nine-month FY21

Further, Sharda Motor Industries continues to remain debt- free with about INR 346 crores of surplus cash as on 31st, December 2021. 

Capex

SMIL is well capitalised and has no big capital expenditure intentions in the foreseeable future. Because the corporation currently has the primary facilities in place, CAPEX requirements are simply incremental. This year, CAPEX is estimated to be close to INR 20 crores, with an additional 20% possible, although the firm has already budgeted for INR 10 crores. The firm is debt-free, and any capital expenditures would be financed by internal accruals.

Managements comments and future outlook

The evolution of new emission norms in the form of CEV IV& V, and TREM IV& V should open up new opportunities for Sharda Motor Industries.

Cash generation is expected to remain strong in the coming years which the company intends to utilise for inorganic opportunities via mergers and acquisitions or return it to shareholders.

Management had resisted in providing any particular projection in terms of sales or growth objectives, despite the fact that they remain quite positive on the next two, three, and four years and are certain of beating the vehicle sector by a significant margin.

Also, when it came to order book disclosures, management abstained from providing any figures since they were working with their business development team to make some form of transparency on the same. However, in a general statement, management stated that they were looking at extremely good and undoubtedly one of the company’s finest results in its history.

Management said that its content vehicle in LCVs and passengers will go up by broadly 10% to 15% in the coming period and therefore, on avery broad level the EBITDA from these could also go by 10% -15% per vehicle. 

As per the management on a broad level, the worst seems to be behind us when it comes to the semiconductor shortage. And as said that there was a very good order backlog which all customers were seeing.

For the Eberspaecher joint venture, management expects sales to reach breakeven points this year, particularly in the current or next quarter, but due to the semiconductor issue that customers were experiencing, it had not yet reached its full sales potential, and sales looked very similar to last year’s figures.

Management anticipates that once customer sales take up on these engines, they will improve and approach the breakeven threshold. So they were hoping for an improvement in the current or upcoming quarters, but it was predicated on this semiconductor issue being fixed.

Sectorial Outlook

The car sector suffered as a result of the pandemic and the semiconductor shortage, but it is now returning to its long-term development path. Demand is quite high, as indicated by a backlog of about 700,000 automobiles scheduled to be delivered by the end of December 2021.

During Q3 FY22, the auto sector sold 7.9 lakh units of passenger cars, 3 lakh units of commercial vehicles, 1.9 lakh units of three-wheeler sales, and 40.1 lakh units of two-wheeler sales.

Despite such large statistics, Q3 FY22 sales, especially those for the holiday season, fell short of expectations. When compared to the third quarters of the previous two years, HCV sales increased, while passenger car and two-wheeler sales decreased. The backlog for such massive demand may be attributed to one of the primary causes of disruption in the car sector, which was chip shortage.

As a result, we anticipate that the CV category will continue to grow in the double digits in the future.

Future Outlook

In general, if we look at the electrification journey, we can see that there will be a significant influence on the two-wheeler, three-wheeler, and bus segments, which will electrify very quickly.

However, when we look at the PV market, we can see that we will be approaching a powertrain scenario with numerous powertrains.

When we take a closer look at the CV, tractor, and off-highway segments, we can be quite confident that it will not electrify anytime soon, at least not in the next ten years, and will stay extremely stable.

Looking at Sharda Motor Industrie’s strategy, the firm is seeing an exponential expansion in its addressable market as a result of not just law, but also technology and intellectual property produced over the previous 2-3 years. So, when we look at a company’s emissions goods, the addressable market in general is skyrocketing. As a result, the electrification side of things may have a negligible influence.

Second, Sharda Motor Industries will primarily operate in the CV and off-highway markets. When we look at the company’s predictions for 2024 and 2025, we can see that more than 80% of its sales will come from the CV sector plus off-highway, which comprises LCV, heavy commercial vehicles, tractors, construction equipment, and the component business.

Electrification of vehicles is undoubtedly an appealing opportunity, and because the company believes that two-wheelers and three-wheelers could be a great place to play when it comes to electrification, it is targeting this as a new market segment, which is why it has begun with this joint venture on the two-wheeler and three-wheeler side.

Conclusion

Sharda Motors a debt-free company manufacturing and assembling auto components as well white goods components, is the global leader in the production of Exhaust Systems, Catalytic Converters, Independent Suspension, Seat Frames, and Seats, among other things. Company has announced JV with Kinetic Energy to foray into Lithium ion battery manufacturing as well has significant amount of cash and equivalents on the balance sheet which it plans to utilise for Inorganic expansion via mergers and acquisitions. Additionall we expect Sharda Motor industries revenu, Ebitda, Pat to grow at significantly higher levels in the coming period, led by increased content per vehicle in both the PV and CV segment, improvement in JV profitability and operating leverage. Thus Sharda Motor Industries is worth exploring for long term.

Sharda Motor Industries was previously suggested on March 10, 2019 when the stock was trading at 1545 Rs. After that in 2021 company announced to split the share from FV 10 Rs to FV 2 Rs. Thus in total it has delivered almost 150% returns in 3 years / since suggested on darkhorsestocks.