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Sterling ToolsQ3 FY23

Sterling Tools Q3 FY23 Earnings Call Analysis

Revenue, margin, capex, fundraise and order book outlook from management commentary.

Price: ₹215P/E: 40.5Market Cap: ₹780 CrSector: Auto Components

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

N/A

Order

N/A

Capex

Yes

1 of 3 growth signals are positive — mixed outlook.

Full analysis

Revenue guidance

Category 2
  • Fasteners business revenue is up 33% in nine months, with strong momentum continuing, aided by expected election-year spending in FY24.
  • Motor Control Unit (MCU) business, focusing on electric vehicle components, will have its first full year of operations in FY24 with significant growth expected.
  • The company plans to invest further in electronics, green technology, and new product lines like onboard chargers.
  • Expectation of 25%-30% growth in the EV segment over the next 2-3 years.
  • Current MCU capacity utilization is around 65%-70%; expansion to 5 lakh units expected by June-July 2023.
  • Market share for EV business might stabilize around 20% in the next three years.
  • Fasteners division EBITDA margin targeted at 17%-18% in near term despite steel price volatility.
  • Overall growth trajectory is positive with multiple segments showing momentum and investment in future technologies.

See what Sterling Tools management said on margin guidance — free account, 30 seconds.

Fundraise plans

  • There is no explicit mention of any current or planned fundraising through debt or equity in the provided transcript.
  • The company is focusing on capital expenditures funded internally, with INR 12 crores for FY23-FY24 and INR 20 crores planned for the MCU division.
  • Capex for the fasteners business is around INR 25 crores, totaling approx INR 45 crores consolidated for FY24.
  • The company shows no indication of additional fundraising needs, emphasizing that capacity expansions in the EV segment are more tech and supply-chain oriented rather than heavily capital-intensive.
  • Working capital and finance costs are currently minimal, and there is no mention of seeking external funding.
  • Any future needs for expansion (e.g., a potential second facility for MCU) are being internally evaluated without mention of financing plans.

See what Sterling Tools management said on order book — free account, 30 seconds.

Capex plans

Yes
  • Current FY23-FY24 capex plan:
  • - INR 12 crores allocated for Motor Control Unit (MCU) division.
  • - INR 25 crores planned for fasteners business.
  • - Total consolidated capex approximately INR 45 crores.
  • Expansion plans:
  • - Expansion from existing 3 lakh MCU unit capacity to 5 lakh units expected by June-July 2023.
  • - Construction for this expansion started February 2023; equipment ordered and partly shipped.
  • - Considering potential additional facility for MCU business with lead time of 6-10 months.
  • Focus areas:
  • - Ongoing investments in new technologies, especially electric vehicle components and green tech.
  • - Assessing additional product lines like onboard chargers and other green technologies (early stage).
  • Capex investments are tech- and supply chain-oriented, relatively moderate financially but critical for growth.

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Margin guidance

Category 3
  • Sterling Tools' legacy fasteners business grew 33% in revenue over nine months; positive momentum expected to continue in FY24, boosted by election year spending.
  • Motor Control Unit (MCU) business, focused on electric vehicle components, is in its first full year of operations with strong growth visible; EBITDA margin expected to reach 8%-12% as sales grow to INR 400-600 crores.
  • Fasteners business EBITDA margins historically at 16%-19%, expected to reach 17%-18% in near term, with steel price fluctuations likely manageable due to customer compensation.
  • Expansion plans include fasteners capex of INR 25 crores and MCU capex of INR 20 crores for FY24, supporting scalable growth.
  • EV business capacity to increase from 3 lakh to 5 lakh units by mid-2023, targeting 25%-30% growth over next 2-3 years.
  • Visibility on pricing, supply chain, localization, and tech capabilities provides first-mover advantage and supports sustained profitability growth.

Order book

  • The company currently has a strong and growing order book, particularly in the Motor Control Unit (MCU) business.
  • They are working with 14 customers in production for the MCU business at different stages.
  • Ramp-up has been slower than expected due to government battery regulations causing re-certification delays.
  • The company sees increasing demand across two-wheelers, three-wheelers, LCVs, and farm equipment segments.
  • Expansion plans include increasing MCU capacity from 3 lakh units to 5 lakh units by June-July, with potential for another facility within 6-10 months.
  • Customer acquisition momentum and product pipeline visibility remain strong, supporting expected growth.
  • Fasteners business also shows momentum with a 33% revenue increase over nine months.
  • Overall, they are confident about future order flow and growth due to technology investments and market expansion.

How does Sterling Tools rank vs peers in Auto Components?

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