Introduction
Founded in 1986, Sharda Motor Industries Ltd (SMIL) has climbed to many peaks. Company is establishing new patterns in this industry by bringing brilliance and technical know-how, as well as the most recent design, equipment, and production methods—all of which are highly efficient, ordered, and structured in India.
In Mahindra World City, 45 miles from Chennai International Airport, the R&D centre unveiled its doors in 2010. It is a state-of-the-art facility that can design, evaluate, and approve exhaust systems for use in passenger cars, light trucks, and other non-automotive uses. The R&D Center has all the necessary tools to adhere to Tier 4, BS4, and other pollution requirements. Future emission and NVH solutions are being actively developed by the management team and engineers in collaboration with prestigious colleges and agencies. Future invention initiatives are being focused by the company on light weighting, cost reduction, and modularity. Thus in total company has 9 Manufacturing units (including JV), 3 sales offices & 1 R&D center.
Company’s R&D Centre is well equipped to cater to various emission norms ranging from BS6, BS6.2, TREM5, STAGE5, TIER4 & TIER5 etc supported by 100+ Trained and skilled engineers for Design, CFD, FEA & Acoustics.
Besides company also has Dun & Bradstreet 5A1 rating and is IATF 16949-2016 certified.
Company has strategic partnerships with Eberspaecher, Germany (CV exhaust systems), Kinetic Green, India (EV Battery) & Bestop Inc. USA (Roof Systems).
In just a short 36+ years, Sharda Motors has become the industry leader in the production of products like Exhaust Systems, Catalytic Converters, Independent Suspension, Seat Frames, Seat Covers (Two Wheelers & Four Wheelers), Soft Top Canopies, and Pressed Part-White Goods. Company has 30+% market share in exhaust system.
Business Product
Exhaust Systems
The exhaust system collects cylinder exhaust gases, filters out hazardous substances, reduces pollution, and then discharges the cleaned-up exhaust gases safely away from the car’s occupants. The exhaust system may have one or two lines, depending on the motor.
Sharda Motor is the industry leader in this field from conceptualisation to production.
Suspension System
A vehicle’s wheels are attached to it by a suspension system made up of tyres, tyre air, springs, shock absorbers, and connections. This system enables the wheels to move in relation to one another. Road holding/handling and ride quality cannot coexist in the same suspension system. The purpose of a car’s suspension is to maintain passenger comfort, provide driving steadiness with excellent handling, and increase tyre-road friction. If a path were perfectly level with no imperfections, suspension wouldn’t be required. However, as we are all aware, the majority of India’s roadways are not flat.
Sharda Motor has experience in this industry thanks to its top-notch production methods.
Joint Ventures
JV with Eberspaecher Exhaust Technology
In FY19, SMIL established a 50:50 joint partnership with Eberspaecher Exhaust Technology International of Germany to manufacture exhaust systems for business vehicles in India (SMIL had made an investment Rs 37.5cr as of March 2021). For Indian automakers, the JV develops, produces, and sells emission aftertreatment systems that adhere to the most current BS-VI standards. The industrial manufacturing had started at the second JV plant in Pune.
With 80 sites in 28 nations and 4.9 billion euros in projected sales for 2020, the Eberspächer Group of Companies is a major supplier to the car industry. It brings a global perspective to the local industry. The company is a market winner in industrialised countries with a market share of 75% in Europe and a market share of 50% in the US.
Sharda Motor Industries JV with Kinetic Green Energy & Power Solutions
In June 2021, Kinetic GreenEnergy & Power Solutions, a Kinetic Group company, and Sharda Motor Industries signed a joint venture (JV) deal to work together to create battery packs with battery management systems (BMS) for stationary and electric car uses.
The design, development, and manufacturing of lithium ion battery cells as well as the BMS will be handled by the JV company. The company’s main emphasis will be on creating battery packs for other energy storage application sectors as well as India’s rapidly expanding electric vehicle market.
The company has a technical partnership with India’s top academic and research school, the Indian Institute of Technology, Madras, for this reason. According to the terms of the technical collaboration agreement, the JV will receive technology for Lithium ion battery energy storage for electric two-wheelers, three-wheelers, and other small electric vehicles from the Centre for Battery Engineering and Electric Vehicle (CBEEV), a research and development centre at IIT Madras. Improved mechanical designs to control vibrations brought on by changing road conditions, better thermal designs to endure India’s extreme temps, and a Battery Management System created by CBEEV IITM with Indian road conditions in mind are all examples of IIT Madras technology.
The Partnership, in which Sharda Motor will hold the majority of the shares, is expected to open its state-of-the-art production facility in Pune by the third quarter of fiscal year 23. (No latest information is available)
Since the company has chosen a CAPEX light strategy, the investment has been very small thus far, and according to projections, the JV will only require a small amount of CAPEX in its initial phase. This is because management does not currently anticipate any significant investment in the JV. Phase-1 appears to have a very CAPEX-light business strategy, but it is still too early to say whether there will be for Phases 2 and 3.
JV with Bestop Inc. USA
Sharda Motors has entered into technical partnership with Bestop Inc. USA for manufacturing of roof systems.
Sharda Motor Industries kinetic energy-based lithium ion battery versus others
What sets apart its lithium ion battery from those of other companies, where many people have signed up for the PLI plan, such as Exide, Amara Raja, Toshiba, Lucas, and TVS, was one interesting question raised to management. Some of the aforementioned companies were making power cells, but Sharda Motor was making power cell assemblies, which are untouched by science, evolution, or technology.
The company’s strategy is to use this chance with its main customer to develop a variety of other products that its R&D system is currently working on while also being more asset-light in the battery manufacturing industry.
Clients
Financials
For Q3FY23
- Net Sales stood at Rs 686.00 crore in December 2022 up 18.56% from Rs. 578.60 crore in December 2021.
- Quarterly Net Profit stood at Rs. 46.37 crore in December 2022 up 18.66% from Rs. 39.08 crore in December 2021.
- EBITDA stood at Rs. 75.41 crore in December 2022 up 11.49% from Rs. 67.64 crore in December 2021
- EPS stood at 18.30 Rs in December 2022 up 40% from Rs. 13.14 in December 2021.
- As of Dec 22 company has cash balance of 588 crores.
For the year Ended March 22
- Net Sales stood at Rs 2,255 crore in March 2022 up 30% as compared to Rs. 1,737 crore in March 2021.
- Yearly Net Profit stood at Rs. 149 crore in March 2022 up 122% from Rs. 67 crore in March 2021.
- EBITDA stood at Rs. 228 crore in March 2022 up 77% from Rs. 129 crore in March 2021.
- Company is completely debt free.
- Cash and equivalents stood at 398 crore highest ever as on March 22.
- Operating profit margin stool at 40%.
Managements comments
As the lithium-ion battery industry is currently in the pre-revenue stage, the company merely assembles the batteries into packs. Kinetic is a joint venture partner. Kinetic Green manufactures two-wheelers, three-wheelers, and will start making golf buggies very soon. Sharda Motors will start the project by merely assembling the batteries and the BMS and giving it to them as Phase-1 in accordance with the joint venture arrangement. Since it is still in the pre-revenue stage, the business has no earnings from this project for the current quarter.
The company’s primary rivals are two Fortune 500 businesses located in India: an American and a French company. Both of these companies have a presence in India. For one or two clients, there are a few other, smaller rivals, such as Japanese.
Since company has ample amount of cash on the Balance sheet it is also exploring various Mergers and Acquisition options for organic as well as inorganic expansion.
Also management is confident of having Operating margins in the current range going forward.
Key growth drivers as per the management
In terms of the company’s development factors, the emission vertical ranks first, with a number of new laws beginning in the next two to three years, the first of which is RDE BS-VI-II, which goes into effect on April 1. The management is confident in keeping its market dominance and may even see a small rise in product sales, which will ultimately result in higher content per car, LCV, etc.
TREM-IV and TREM-V standards will also soon be available. TREM-IV standards are already in effect, TREM-V norms will go into effect in a few years, and for the TREM-V market, Sharda Motor’s emission goods will also be required for all domestic tractors. Therefore, it is a significant opportunity for the business from the perspective of the addressable market, and in this instance, management anticipates a very strong market as well. Additionally, the company has already been nominated for numerous initiatives in this area.
Then, of course, the sub component side is the next development engine. Since establishing a Business Development team, the company has already begun this effort to export emission systems and sub components for smaller engines. The company anticipates that the potential market for this team will grow significantly.
The potential market is much larger than India because Sharda Motors is arguably the smallest company in the world with the intellectual property necessary for emission products for all of these categories. This will be another development engine for the business.
Additionally, the company is addressing its suspension vertical as a development driver. Given that the balance sheet of the company has ample capital to invest into powertrain agnostic products, the build by approach company will be working on not only suspensions but also other powertrain agnostic products. For this reason, the company is looking at deploying some capital in the form of mergers and acquisitions.
The business wants to concentrate only on the two- and three-wheeler segments in the Phase-1 EV growth driver, which is more on the EV side and has already been discussed above. As this segment gets expertise, it will also become a growth driver over the following few years.
Sectorial Outlook
Sectorial outlook is not addressed because during the most recent management conference, there were many questions that went unanswered, to which the management explained to submit a private inquiry for the same.
Note
Sharda Motor Industries was previously suggested twice
- 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.
- On April 24,2022 when the stock was trading at 764 Rs and since then it is down about 18%.
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 etc. Company has announced JV with Kinetic Energy to foray into Lithium ion battery assembling 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. Additional 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. If we observe over past 1 year the company price has been flat despite growing financials. Company based on FY22 earnings trades at PE of just 9. Also as seen from the past sharda motors is a type of company whose price may remain stagnant for a long period and in just short time may run up significantly.
Additionally, based on the most recent conference call, we observed that management is quite optimistic but unsure of the company’s future course. This may be because they don’t want to raise investors’ expectations as they have stated that they believe in using caution when allocating capital. Therefore, it will take some time before the business can begin its path towards ambitious future development, despite having a large cash amount on hand. Investors should not explore this company if they are unable to be patient and have confidence in the management. Thus Sharda Motor Industries is worth exploring for long term.
