This Co is the 2nd largest automotive fastener manufacturer in India for the last 4 decades and one of the largest MCU suppliers for electric vehicles in India.

Sterling Tools

Current Market price on the date of publishing this report-: 235 Rs

Introduction

Incorporated in 1979, Sterling Tools manufactures high tensile and premier cold forged hi-tensile fasteners catering to the passenger cars, two wheelers, commercial vehicles, agri-equipment and construction equipment segments. As a dynamic company, it has also ventured into sunrise sectors such as electric vehicles (EV’s) to ensure robust value creation for its stakeholders. Company’s client portfolio comprises leading OEMs in the domestic market and international markets including USA, Europe, South America and the Middle East.

Sterling’s products are known for their high quality, superior fatigue resistance and durable strength. The wide range of products cater to a variety of global standards, including Indian, German, Japanese, American and British. We also offer customised products to suite the unique needs of customers, which are available in a variety of surface protection coatings.

STL has carved out a position for itself as a supplier to the industry’s leaders in numerous categories. The firm is Hero Honda’s leading supplier of HT fasteners and Maruti, Bajaj Auto, and TELCO’s second largest supplier.

For 14 years, STL has been renowned in the market for its indigenous development of essential technical expertise. The company’s product line contains over 2000 different types of fasteners ranging in diameter from 5 mm to 24 mm.

Manufacturing Facilities

Company’s manufacturing facilities are spread across three plants, all located in the industrial hub of Faridabad in Haryana close to New Delhi. Plant I at the DLF Industrial Area and Plant II at Prithla, Palwal are both main fastener manufacturing facilities. Plant III, Wire Drawing Plant is set up at Sector 25 in Faridabad.

Manufacturing Facilities comprises of following

• Wire Drawing Plant
• Cold Forging
• Thread Rolling
• Heat Treatment
• Secondary Operations
• Surface Treatments
• Optical Sorting

Business Products

Standard Fasteners

STL makes high tensile fasteners for the automotive sector, serving manufacturers of passenger cars, two-wheelers, commercial vehicles, agricultural equipment, and construction equipment.

Responding to the demands of significant OEM and Tier 1 players throughout the world, the Company offers a variety of surface finishes on fasteners such as Zinc Phosphating, Zinc Plating, and Dip Spin Coating. It employs top brands for fastener coating finishes, such as GeomatTM, MagniTM, and DeltaProtektTM, with GeomatTM and MagniTM done in-house.

Company classifies its fasteners into four categories and these can be manufactured to suit customer requirements.

• Standard Fasteners
• Special Fasteners
• Chassis Fasteners
• Engine Fasteners

Nuts

M6 to M22 and equivalent inch series

SPECIAL FASTENERS

Special fasteners are created based on the specifications supplied by our customers via prints and drawings. Fasteners for steering, suspension, and seating systems are included in the whole spectrum of fasteners. In addition, the company offers tailored solutions with its different surface protection coatings to satisfy the needs of its clients in an effective manner.

Special fasteners can further be divided into following-:

• BOLTS FASTENERS – STL Fasteners is well-known for producing high-quality bolt fasteners. These bolt fasteners are extensively used in a variety of industrial applications; they are made in accordance with industry standards in order to achieve international quality requirements.
• STAINLESS STEEL FASTENERS – Stainless Steel Fasteners comes in several designs, sizes and specifications in order to cater the challenging demands of various industries like automobile, construction, manufacturing, etc.
• NUTS FASTENERS – STL Fasteners is a well-known company in the making, supplying, and exporting of high-quality Industrial Nuts. The whole collection comprises hex, heavy duty, and lock nuts that have been precisely designed in compliance with industry standards. While their use is well recognised in numerous industries such as vehicle, building, manufacturing, and hardware, all items are created to fulfil their specifications as well as possible.
• SCREW FASTENERS – STL Fasteners is one of the leading Industrial Screws manufacturers, suppliers & exporters. At STL Fasteners, we provide you with a wide range of products in regular as well as in metric shapes and specifications.
• ANCHOR FASTENERS- STL fasteners are engaged in offering best in class Anchor Fasteners to its clients. Due to its accurate dimension, corrosion resistance finish and durable construction, these fasteners are highly demanded in the market.
• CHASSIS FASTENERS – Chassis fasteners range involves hub/wheel bolts, hub nuts, wheel studs, suspension bolts, shoulder bolts, propeller shaft bolts/nuts, centre bolts, track shoe bolts/nuts, rivets and two wheeler spindles/wheel axles which are extensively used in the undercarriage of automobiles and heavy earth-moving equipment.
• ENGINE FASTENERS- Engine fasteners are extensively used in internal combustion engines of cars, commercial vehicles, two wheelers and agricultural equipment. This includes cylinder head bolts/screws, fly wheel nuts/bolts, connecting rod bolts/nuts, balance weight bolts, engine cover bolts and main bearing cap bolts.

As per the management in the fastener segment, on the automotive space, company’s market share is close to about 30%.

Electric Vehicle Business

Company entered the EV space in 2020 and now is one of the largest e-2W MCU suppliers in India. Electric Vehicle Business constitute 17% of total group revenues, more than for any other auto ancillary company in the country. It has Nearly 50% market share in high speed scooter segment, about 33% in overall 2W segment. Company in EV Business is EBITDA and PBT positive in less than a year of starting operations On its Recent successes in CV segment company has received Business Award from 2 of top 4 LCV players.

Company has engineering team of 30 people and growing rapidly at its Bangalore Engineering Centre which is now operational. Company is also undertaking Expansion of the plant to optimize process flows.

Company has seen tremendous growth in this segment. According to management’s estimation, it has nearly 50% market share in the high-speed scooter segment and about 33% in overall E2- wheeler segment. On the back of from great customer acquisition and some of its customers have ramped up volumes substantially which could add more fuel to the growth in the coming period.

High-speed segment is where typically the speeds are 60 kilometers an hour more or more going up to 100 kilometers an hour, and the range is up to 150 kilometers also.

Electronics and Pure EV component sales now constitute around 10 % of STL’s consolidated revenues and this is expected to increase to 15-20% in the near future.

Sterling Gtake E-mobility Ltd. (SGEM)

Sterling tools has formed partnership between Sterling Tools and Jiangsu Gtake of Shenzhen (China). Gtake is a technology leader in motor control units for electric and hybrid vehicles and has a dominant market share in the electric CV space in China. The agreement calls for the companies to manufacture motor control units domestically to cater to the Indian automotive market as well as to develop local design (hardware & software customization) engineering, application support and after-sales service capabilities.

Currently company has Installed capacity of 300,000 MCUs facility expansion being planned to further enhance capacity

Sterling Gtake E-Mobility (SGEM) has received orders for MCUs from 10 EV OEMs for use in high-speed vehicles, with a current order book of around 170+ crore, with the majority of the orders being executed in FY23E. Another 30 EV OEMs are in advanced stages of negotiations.

What is MCU?

iMAGE FROM P

• A Motor Control Unit (MCU) is an electronic module that interfaces with the Motor as well as the Battery Pack to control the electric vehicle’s speed, acceleration and range based on the throttle input.
• MCUs are one of the most important components of an EV and require a combination of power electronics, motor control algorithm and firmware expertise.
• In the absence of a VCU, the MCU also controls some basic vehicle level functionality.
• EV powertrain usually describes a sub-system consisting of the motor, controller and gearbox/differential. Some EV powertrain suppliers may also include the battery pack, the AC/DC and DC/DC convertors, the wiring harnesses and possibly the instrument cluster so as to provide a comprehensive solution for the entire electrical sub-system.
• MCUs make upto 10% of electric 2W cost.

Clientel

Financials

For the year ended March 22

• Company recorded revenue growth of 33% from Rs 358.1 crore in FY2020-21 to Rs 474.6 crore in FY2021-22.
• EBITDA grew by 9% to Rs 73.3 crore in FY2021-22 from Rs 67.5 crore in FY2020-21.
• PAT grew at Rs 29.7 crore in FY2021-22 from Rs 24.4 crore in FY2020-21 registering a growth of 22%.
• Cash Profit increased by 7.79% at Rs 56.27 Crore
• Total debt as of March 22 stood at 108 crore almost same as that of previous year.
• Company had cash balance of 18 crore as of March 22.

For Q2FY22

Net Sales stood at Rs 178.60 crore in September 2022 up 39.74% from Rs. 127.80 crore in September 2021.

Quarterly Net Profit stood at Rs. 16.60 crore in September 2022 up 64.93% from Rs. 10.07 crore in September 2021.

EBITDA stood at Rs. 25.57 crore in September 2022 up 17.08% from Rs. 21.84 crore in September 2021.

Sterling Tools EPS has increased to Rs. 4.61 in September 2022 from Rs. 2.79 in September 2021.

For the Second quarter sales turnover from fasteners business stood at INR 155 crores, aggregating to INR 293 crores of sale in six months, which for fasteners business is all-time high.

This was about 20% higher as compared to last year.

Electric vehicle business, company did INR 25 crores of sales. Half yearly number reaches to INR 62 crores.

In the first half of FY23 Company achieved a Volume growth of 22% while overall growth if 34%.

Managements comments

Management does not expect any significant major capex going forward. As based on the current capacity, company has headroom for excess capacity upto total revenue of about INR 800 crores.

Management is expecting 15% to 18% growth next financial year.

Management is looking at products where Sterling tools will not just be a screw driver company. Management want to add a lot more tech, a lot more layers of competent technology on top.

Management for FY ’23 expects around INR 150 crores kind of the sales to come from MCU.

STL is a customer-focused fastener company with a stellar track record of never losing a customer since its beginnings. In this market, no customer accounts for more than 20% of sales, with Maruti Suzuki being the most important client. The fastener industry’s peak sales potential is estimated to be about 700-750 crore.

STL generated sales of over 38 crore in Q4FY22 in the EV arena, with a current quarterly run-rate of approximately 40-45 crore. The current emphasis is on business expansion and client acquisition, with profits projected to be subdued in the short term. STL, on the other hand, intends to be cash positive in FY23E.

Sectorial Outlook

The Indian automotive industry was negatively impacted by the second wave of the pandemic, and its lingering impacts. A global chip shortage due to supply constraints came as a major issue in the second half of 2021, which impacted sales. Towards the end of the fiscal the Russia-Ukraine crisis and another lockdown in China further worsened the scenario. The two-wheeler segment was the worst hit by the pandemic, reporting its lowest wholesales figures in the last 10 years.

The total number of passenger vehicles wholesaled in FY22 went up by 13% from 2,711,457 to 3,069,499 units. Sales of passenger cars fell from 1,541,866 to 1,467,056 units, while utility vehicle sales rose from 1,060,750 to 1,489,178 units, compared to the previous year. From April 2021 to March 2022, 113,265 vans were sold, compared to 108,841 from April 2020 to March 2021. Overall, sales of commercial vehicles expanded from 568,559 to 716,566. From April 2021 to March 2022, sales of medium and heavy commercial vehicles climbed from 160,688 to 240,577 units, while sales of light commercial vehicles rose from 407,871 to 475,989 units. From April 2021 to March 2022, two-wheeler sales fell to 13,466,412 units, compared to the previous year’s volume of 15,120,783. Compared to the previous year, three-wheeler sales grew from 219,446 to 260,995 units during the year.

The government has proposed Rs 57,000 crore in aid as part of the Production-Linked Incentive (PLI) programme, which is expected to provide chances for end product and component manufacturers. Furthermore, the replacement of existing vehicles with new ones is likely to rise in the coming years as a result of regulations such as the ‘Green Tax’ on polluting automobiles and the Vehicle Scrappage Policy.

EV Segment

The electric vehicle sector in India finished the fiscal year FY22 on a high note, with total registered EV volumes (all categories) increasing by 3X to 4.3 Lacs units from 1.3 Lacs units in FY21. The Indian EV sector is less than a decade old, with total EV sales of one million automobiles up to fiscal year 22. Passenger Electric Three Wheelers (59.4%) dominate the market, followed by E-Two Wheelers (32.8%), while the remainder is made up of E3W freight, E-car, and E bus. Approximately half of all EV vehicles in India are registered in four states: Uttar Pradesh, Maharashtra, Karnataka, and Tamil Nadu.

Some of the prominent participants in the EV field are well-known automakers as well as start-ups, such as Hero Electric, Okinawa, Ampere cars, Ather energy, Pure energy, OLA for E2W; YC Electric, Mahindra Electric for E3W; and TATA, Leyland, PMI Electro Mobility, JBM, Olectra for E-buses.

Conclusion

Sterling Tools (STL), founded in 1979, is India’s second biggest automotive fastener producer, with no debt and a cash position of more than Rs 18 crore as of March 2022. It has had a notable presence for over four decades, and its core clientele include all major vehicle OEMs across all categories.

Over the last several years, the firm has forayed into the EV category and has been gradually increasing, with Electronics and Pure EV component sales accounting roughly 10% of consolidated sales and likely to climb to 15-20% in the future.

Also management is confident of achieving 15-20% growth supported by current EBITA margins. Thus this makes Sterling Tools worth exploring for long term.