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Steel Strips Wheels Ltd

| Q3 FY 2026 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤30th Jan 26

Summary : Steel Strips Wheels reported strong Q3 FY26 results driven by robust domestic demand and the aluminum segment, with management expressing a bullish outlook on future growth and capacity expansion despite ongoing export challenges.

Management Perspective positive : Management expressed being "absolutely bullish" on future prospects, citing a "sure-shot rally" due to GST reforms. They are "confident of maintaining business momentum" and have "very bullish projections" for EBITDA accretion. The MD stated, "this is the best time for us" and they are "very close to that dream" of Rs. 300 EBITDA per wheel.

Concall Report Analysis & Insights

Business Overview

  1. Q3 FY26 revenue grew 23% year-on-year to Rs. 1,321 crores, driven by domestic demand.
  2. Nine-month FY26 revenue increased 16% to Rs. 3,708 crores, supported by government reforms.
  3. Q3 FY26 EBITDA rose 8% to Rs. 128 crores, despite sluggish export market demand.
  4. Aluminum segment was a standout performer, contributing 37% to revenue and 20% to volume.
  5. Two- and three-wheeler business showed strong growth due to GST 2.0 reforms and festive season.

Future Growth Prospects

  1. Anticipate 20% revenue growth next year, targeting Rs. 6,000 crores turnover.
  2. New Bhuj facility will add 1.2 million aluminum wheels and 0.6 million knuckles capacity.
  3. Aluminum knuckle segment aims for 5 lakh units annual capacity this year, scaling to 11 lakh next year.
  4. Strong order book for aluminum wheels is sold out for the next two years.
  5. Diversifying export base, with Europe now accounting for over 58% of export revenue.

Management Insights

  1. Raw material price increases are a pass-through, adjusted quarterly for aluminum and steel.
  2. Domestic segments like CV, tractor, and aluminum wheels have outshone, driving overall growth.
  3. Focus on premiumization, operational excellence, and OEM partnerships sustains growth.
  4. Capacity utilization is at near-full or 100% in CV, tractor OTR, and aluminum wheel segments.
  5. Confident in maintaining business momentum with healthy order visibility across key domestic segments.

Signs of Skepticism

  1. Analyst questioned suppressed EBITDA margins despite higher alloy wheel mix and top-line growth.
  2. Discrepancy noted by an analyst regarding the reported market share in the MHCV segment.
  3. Analyst questioned the 7-year payback period for CAPEX, suggesting a subpar 14% IRR.
  4. Analyst noted PAT remained flat at Rs. 200 crores from FY22 to FY26 despite 1.5x revenue growth.

Risk Factors

  1. Subdued export demand due to ongoing tariff-related uncertainties in the U.S. market.
  2. High-margin export steel wheel business compromised by US tariffs (Rs. 300-400 crores).
  3. Raw metal price increases can suppress EBITDA percentage margins, despite pass-through mechanisms.
  4. Competition in the aluminum segment could put pressure on margins.
  5. Potential delays in customer validation and approval for new Bhuj facility products.

Good To Know

  1. Total CAPEX for the new Bhuj facility is approximately Rs. 420 crores, plus Rs. 40 crores for maintenance.
  2. FY26 CAPEX spend is projected to be around Rs. 225-250 crores, with remaining spread over FY27-28.
  3. The average cost of debt for the company is around 8% to 8.5%.
  4. EBITDA per wheel for Q3 FY26 was Rs. 260, up from Rs. 240 in the previous quarter.
  5. The company saved Rs. 100 crores in CAPEX by utilizing existing buildings and land at the AMW factory.

Key Drivers

  1. Domestic demand remains robust.
  2. US tariff resolution expected soon.
  3. New Bhuj facility ramps up.
  4. Increased aluminum wheel penetration.

Key Analyst Discussions

Competitive Environment

  1. Questions regarding market share in the MHCV segment and any changes year-on-year.
  2. Inquiries about competition in the export market, particularly from Thailand and Vietnam.
  3. Discussion on the company's strategy to regain lost market share in US steel wheels.

Market Trends & Consumer Behavior

  1. Questions on the impact of GST reforms on domestic demand across various auto segments.
  2. Discussions about the subdued demand in the US export market due to tariff uncertainties.
  3. Inquiries about the overall buoyancy in the domestic market and OEM export activities from India.

Financial Highlights

  1. Questions on sustainability of export realizations and potential for reclaiming peak EBITDA margins.
  2. Inquiries about the company's cost of debt and the impact of raw metal prices on EBITDA.
  3. Clarification sought on EBITDA per wheel calculation and future trajectory.
  4. Concerns raised about flat PAT despite significant revenue growth over several years.

Product Composition

  1. Questions about the growth drivers for EBITDA margin improvement, specifically from product mix.
  2. Discussions on the relative profitability and margins of aluminum wheels versus steel wheels.
  3. Inquiries about the contribution of different segments (tractors, trucks, aluminum) to future growth.

Strategic Considerations

  1. Questions about the total CAPEX for FY27 and the funding strategy for new expansions.
  2. Inquiries about the capacity ramp-up timeline for the new Bhuj facility and its peak revenue potential.
  3. Discussions on the company's strategy for diversifying its export base to Europe.
  4. Questions about the cost-effectiveness of the company's CAPEX compared to industry peers.