Weekly Fin-Fun NewsLetter #82

Stock of the week, Nolan, Air , Free Trading Books, Lessons from the greatest investors and more

May 30, 2023

The information provided on this blog is for informational purposes only and should not be construed as financial advice. The author's opinions are based on their own personal experiences and research, and should not be relied upon as a substitute for professional financial advice.

Nifty continues its march towards ATH, stops at 18600 levels

Ditto with Bank Nifty, stops at 44200 levels

STOCK of the Week

Sundram Fastners CMP 1097

Sundram fasteners ltd, a part of the TVS Group of Companies, is engaged in manufacturing critical, high precision components such as fasteners, power train components etc for the automotive, infrastructure, windmill, and aviation sectors. ^[1]

KEY POINTS

Product Portfolio
High Tensile Fasteners: Wind Energy Fasteners, Automotive Fasteners, Engine Fasteners Aerospace and Aviation Fasteners, etc.
Cold extruded parts: Gear blanks, Transmission shafts, Cams, etc
Hot Forged Parts: Bevel Gear & Pinion Family, Hub and Gen 3 Bearing hub rings, etc.

Concall Notes - May 2023

Financial Performance:

Achieved INR 5,000 crores of consolidated turnover and INR 500 crores of consolidated PAT for the first time.
Revenues grew by 18% from INR 4,198 crores to INR 4,949 crores, with growth across most divisions and segments.
The profit before tax increased by 11% to INR 615 crores, and the profit after tax grew by 14% to INR 464 crores.
The company declared the highest dividend payout in its history at INR 8.63 per share.

Capex:

TVS has spent INR 1,000 crores on capex in the last five years, with INR 300 crores spent in FY '23 and a targeted INR 1,000 crores to be spent in the next couple of years.
Capex has been broad-based across Fasteners, engine components, powder metal, hot forging, wind energy, and electric vehicle space.
Capacity expansion for wind energy has started and uptake is expected to start happening from October.

Revenue and Growth:

The growth of the industry has been around 23%, and Sundram Fasteners has reported 26%.
Expects to achieve around 17% EBITDA margin this year.
Expects domestic growth to be back-ended due to a good March and the government's infrastructure spending and vehicle scrapping policy, with Q2 and Q3 expected to be stronger than Q1.
Aims to outbid the industry by 2-3% in terms of revenue growth and hopes to move from 60% to 70% in terms of margin, factoring in growth planned for this year.
The wind energy segment is expected to be a meaningful portion of exports in the future, with a peak volume of $52 million expected in FY '25 or '26.
The non-auto business currently comprises one-third of the revenues, and the management has a plan to take it to 50% to mitigate the cyclicality of the domestic commercial vehicles and passenger vehicles industry.
The peak revenue for EV orders is expected to be in FY '25 and FY '26.

Exports:

The growth in exports could be back-ended in FY '24 due to the recessionary trend in Europe and America.
The company is not losing any share with customers.
The company is not building in any decline in the export market and is working based on customer requirements.
There are no specific price hikes for export orders, but compensation requests for freight may be made, and raw material price increases may result in price increases.

Market Share and RFQ:

Assumes high single-digit growth for Class A trucks, which is the same as the guidance for next year's export in constant currency basis.
Gaining market share is not easy, especially for critical components that OEMs are not comfortable replacing.
The RFQ pipeline is strong, and historically the RFQ conversion rate has been in the range of double digits.