1

SYNOPSIS

Steel Strips Wheels Ltd. (SSWL) is

engaged in the manufacturing of single

piece steel wheel rims for scooters,

passenger cars, utility vehicles and

tractors.

During the quarter ended, the robust

growth of Net Profit is increased by

59.61% Rs. 115.40 million.

SSWL has bagged to export 60000

wheels annually with an approximate

value of 22 cr per year with one of

Europe's leading Trailer manufacturer.

SSWL has bagged USD 33 mn contract

from BMW for supply of 265000 steel

wheels annually to Germany.

Net Sales and PAT of the company are

expected to grow at a CAGR of 33% and

56% over 2010 to 2013E respectively.

SSWL is certified in accordance with

ISO 14001:2004, OHSAS 18001:2007

and soon SA8000.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 6575.60 885.30 298.00 20.08 11.09

FY 12E 8416.77 1085.76 433.18 29.19 7.63

FY 13E 9931.79 1281.20 551.43 37.16 5.99

Stock Data:

Sector: Auto Component

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 474.40/206.35

Volume (2 wk. Avg.) 3510.00

BSE Code 513262

Market Cap (Rs in mn) 3303.38

Share Holding Pattern

1 Year Comparative Graph

Steel Strips BSE SENSEX

C.M.P: Rs. 222.00 Target Price: Rs. 251.00 Date: Oct. 8th 2011 BUY

Steel Strips Wheels Ltd Result Update: Q1 FY 12

2

Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Steel Strips Wheels 222.00 3303.38 20.08 11.09 1.44 10.00

L.G. Balakrishnan 286.80 225.08 62.75 4.57 1.15 100.00

Bosch Ltd. 7054.35 22149.88 318.46 22.15 5.41 400.00

Lumax Industries Ltd. 389.40 364.00 19.21 20.27 2.36 60.00

Investment Highlights

Q1 FY12 Results Update

Steel Strips Wheels Ltd. has reported net profit of Rs 115.40 million for the quarter

ended on June 30, 2011 as against Rs. 72.30 million in the same quarter last year,

an increase of 59.61%. It has reported net sales of Rs 2301.30 million for the

quarter ended on June 30, 2011 as against Rs 1484.90 million in the same quarter

last year, a rise of 54.98%. Total income grew by 54.98% to Rs 2301.30 million

from Rs.1484.90 million in the same quarter last year. During the quarter, it

reported earnings of Rs 7.78 a share.

Quarterly Results - Standalone (Rs in mn)

As At Jun-11 Jun-10 %change

Net sales 2301.30 1484.90 54.98%

PAT 115.40 72.30 59.61%

Basic EPS 7.78 5.31 46.49%

3

� Break up of Expenditure

� Bags export order for truck wheel rims from Europe

Steel Strips Wheels Ltd has bagged a long term contract with one of Europe's

leading Trailer manufacturer. This contract has a potential to reach 60000 wheels

per year with an approximate value of 22 Crores per year. Supplies will start from

Oct 2011 from the Company's Jamshedpur plant.

� Bags 33 million USD contract from BMW

BMW Germany has selected SSWL for supply of steel wheels for its new launches

in 2013 and 2014. The annual volume for the three new models is 265000 steel

wheels and supplies shall start from November 2013 to its Oxford, Leipzig and

Regensberg plants in Germany and projected volume is USD 32.65 million. Steel

strips wheels limited is already supplying steel wheels to BMW Oxford plant for its

prestigious mini model and the new order indicates BMW growing relationship with

SSWL.

4

Company Profile

Steel Strips Wheels Ltd., established in 1985 is a part of the Steel Strips Group,

headquartered in Chandigarh. The company is engaged in the manufacturing of single

piece steel wheel rims in the range of 10 to 30 inches for Passenger cars, Multi utility

vehicles, Tractors, Trucks, OTR Vehicles as well as Two and Three Wheelers.

Production facility

The company has three production facilities:

It produces mainly passenger car wheels in Dappar (near Chandigarh) and Oragadam

(near Chennai) and truck wheels in Jamshedpur. The total capacity amounts to 9

million wheels in Dappar, 6 million wheels in Oragadam and 1 million truck wheels in

Jamshedpur. Its total capacity is 16 million wheels.

Product range

The company is a strong and reliable partner to the Indian and international

automotive industry and are increasingly being recognized as a reputed global player

in the development and production of steel wheels for Original Equipment

Manufacturers (OEMs). The company manufactures single piece steel wheel rims for:

� Passenger Cars, 2/3 wheelers

In the Car, MUV and Two- and Three- Wheeler segments our major Indian

customers are Maruti Suzuki, TATA Motors, Honda Siel Cars, Mahindra &

Mahindra, Nissan, Volkswagen, General Motors, Hyundai Motors, Honda Scooters

and Piaggio.

� Tractors Segment

In the Tractor segment we supply to Mahindra & Mahindra Tractors, Punjab

Tractors, International Tractors, Eicher Tractors, Escorts, New Holland, John

5

Deere, HMT, ACE Tractors and NDO Farm Tractors. Truck wheel customers are

Swaraj Mazda, Tata Motors and Ashok Leyland.

� Commercial Vehicles & Earth Mover Segment

In the OTR vehicles segment we manufacture for JCB and L&T Case.

International presence and its Customers

At an international level the company supply to PSA Peugeot Citroen, France (5

different locations) and Renault Nissan Group (Romania and Brazil), BMW (UK),

Piaggio (Italy), Siam Kubota (Thailand and Japan), Kromag (Austria), Just (Germany)

and Pneumat Trading (Slovakia). They are fostering relationship with Renault and

have recently been nominated for supplies of a high tech styled wheel to Russia and

Brazil in addition to Romania. The company has also been selected as a single source

supplier to Renault's Greenfield plant in Morocco. The company’s international

customer base is gradually increasing (several wheel sizes for existing and new

programmes are under development for Renault, PSA and Audi, Germany) and will

soon start supplies of trailer wheels from its new plant in Jamshedpur to several

German trailer OEs.

6

Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 4204.70 6575.60 8416.77 9931.79

Other Income 0.00 0.00 0.00 0.00

Total Income 4204.70 6575.60 8416.77 9931.79

Expenditure -3584.90 -5690.30 -7331.00 -8650.59

Operating Profit 619.80 885.30 1085.76 1281.20

Interest -168.60 -201.50 -223.67 -246.03

Gross profit 451.20 683.80 862.10 1035.17

Depreciation -255.30 -328.10 -364.19 -400.61

Profit Before Tax 195.90 355.70 497.91 634.56

Tax -50.70 -57.70 -64.73 -83.13

Profit After Tax 145.20 298.00 433.18 551.43

Equity capital 130.70 148.40 148.40 148.40

Reserves 1190.20 2152.60 2585.78 3137.21

Face value 10.00 10.00 10.00 10.00

EPS 11.11 20.08 29.19 37.16

7

Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11E

Description 3m 3m 3m 3m

Net sales 1656.40 1859.90 2301.30 2508.42

Other income 0.00 0.00 0.00 0.00

Total Income 1656.40 1859.90 2301.30 2508.42

Expenditure -1430.20 -1628.00 -2016.30 -2182.32

Operating profit 226.20 231.90 285.00 326.09

Interest -53.60 -50.10 -55.50 -58.28

Gross profit 172.60 181.80 229.50 267.82

Depreciation -79.10 -96.00 -108.00 -117.72

Profit Before Tax 93.50 85.80 121.50 150.10

Tax -16.30 -13.60 -6.10 -21.09

Profit After Tax 77.20 72.20 115.40 129.01

Equity capital 144.70 148.40 148.40 148.40

Face value 10.00 10.00 10.00 10.00

EPS 5.34 4.87 7.78 8.69

8

Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 13.07 14.84 14.84 14.84

EBITDA Margin (%) 14.74% 13.46% 12.90% 12.90%

PBT Margin (%) 4.66% 5.41% 5.92% 6.39%

PAT Margin (%) 3.45% 4.53% 5.15% 5.55%

P/E Ratio (x) 20.04 11.09 7.63 5.99

ROE (%) 10.99% 12.95% 15.84% 16.78%

ROCE (%) 23.85% 22.87% 24.62% 25.49%

Debt Equity Ratio 1.78 1.31 1.15 1.01

EV/EBITDA (x) 4.69 3.73 3.04 2.58

Book Value (Rs.) 101.06 155.05 184.24 221.40

P/BV 2.20 1.44 1.21 1.01

Charts:

Net Sales & PAT

9

P/E Ratio(x)

Debt Equity Ratio

10

EV/EBITDA(x)

P/BV

11

Outlook and Conclusion

At the current market price of Rs.222.00, the stock is trading at 7.63 x FY12E

and 5.99 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.29.19 and Rs.37.16 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 33% and

56% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 3.04 x for FY12E and 2.58 x for

FY13E.

Price to Book Value of the stock is expected to be at 1.21 x and 1.01 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.251.00 for Medium to Long term investment.

Industry Overview

India has the most competitive auto parts manufacturing industry in the world, with

Indian automotive components being widely preferred by major automobile

manufacturing companies. The auto component companies in India are contributing

to the growth of this sector by providing genuine, cheap and reasonably priced

automotive parts.

The Indian automotive components industry has actively and quickly transformed

from a domestic market supplier, to one of the essential auto parts supplier in the

world.

The Indian auto component sector has been growing at 20 per cent a year since 2000

and is projected to maintain the high-growth phase of 15-20 per cent till 2015.

12

Growth Drivers

• Rising demand for vehicles - Vehicle production grew to around 17.9 million in

2010-11 - Global Original Equipment Manufacturers (OEMs) are entering India

to establish their manufacturing base

• Low-cost and high quality standards –Low labor costs in India have resulted in

a significant cost reduction, with international quality standards being duly

maintained. An average cost reduction of nearly 25-30 per cent has attracted

several global automobile manufacturers to set base since 1991

• Availability of low cost skilled manpower –India produces close to 0.4 million

engineering graduates every year, and the cost of entry-level engineers is as low

as US$ 8,000 a year. The country accounts for 26 per cent of the world’s

Engineering Service Outsourcing (ESO)

• Policy initiatives - De-regulation and policy initiatives such as lower excise

duties, realisation of value added tax (VAT), etc., have been implemented.

Foreign direct investment (FDI) up to 100 per cent is permitted through the

automatic route for manufacturers of automobiles and components

Industry Structure

The Indian auto component industry is large and highly fragmented. There are around

400 major players in the auto component sector. The original equipment (OE) market

is predominantly catered to by the organised sector. The 400 odd organised producers

contribute around 80 per cent to this market

Market Size

The automotive component industry's output for the financial year 2009-10 was US$

22 billion with a growth rate of 20 per cent, against financial year 2008-09. The Indian

auto component industry has the opportunity to tap around US$ 110 billion by 2020.

Major Indian auto parts makers are on track to report a strong first quarter, on the

back of robust after-sales demand and growing exports.

13

The revenue growth rate of auto ancillary companies is expected to be in line with auto

OEMs. In first quarter of the current fiscal, production by all OEMs in the auto

industry grew by about 20 per cent in comparison with the corresponding quarter of

last year, resulting in corresponding growth in customer demand.

Exports

The industry has been exporting around 13 per cent of its output. In the year 2009-

10, the industry exported goods worth US$ 3.8 billion. Principal export items include

replacement parts, tractor parts, motorcycle parts, piston rings, gaskets, engine

valves, fuel pump nozzles, fuel injection parts, filter & filter elements, radiators, gears,

leaf springs, brake assemblies & bearings, clutch facings, head lamps, auto bulbs &

halogen bulbs, spark plugs and body parts. Exports, which touched US$ 5 billion in

2010-11, are expected to grow by 20-25 per cent in 2011-12.

Recent Trends/Investments

Besides low labour costs, India’s process-engineering expertise, applied to re-designing

of production processes, has resulted in the reduction in manufacturing costs of

components. As a result, India, today, has become the outsourcing hub for several

global automobile manufacturers.

Several large Indian auto component manufacturers are in the process of substantially

investing in capacity expansion, establishing partnerships in India and abroad,

acquiring companies in foreign countries establishing Greenfield ventures, Research &

Development (R&D) facilities and design capabilities.

Japanese car major Toyota has announced an investment of nearly Rs 1,650 crore

(US$ 373.3 million) to increase the production capacity of its Indian operations by one

lakh units and for increasing localisation of components by 2014

Force Motors has will enter the passenger vehicle segment with the launch of a multi-

purpose vehicle (MPV) by 2012, for which the company will set up a new facility in

Madhya Pradesh with an initial capacity of 24,000 units per year. The company said it

14

has signed a licencing agreement with German auto major Daimler for procuring

technology for the MPV

Auto parts maker MothersonSumi Systems Ltd (MSSL) has announced its plans to

acquire an 80 per cent stake in Germany's Peguform Group from Cross Industries.

The deal is expected to be closed in 2-3 months and will be funded through debt from

Indian lenders, said VC Sehgal, Vice-Chairman, Motherson Group.

French tyre-maker Michelin's upcoming India plant in Chennai will produce its first

tyre in November 2012. The company plans to produce three lakh radial truck tyres in

the first year of operations, and cater to the domestic market, according to a top

official. Michelin is setting up a manufacturing unit at ThervoyKhaidigia industrial

area in Tiruvallur district, near Chennai, and would be investing Rs 4,000 crore (US$

904.98 million) over a seven-year period.

Policy Initiatives

The Ministry of Heavy Industries and Public Enterprises has envisaged the Automotive

Mission Plan (AMP) 2006-2016 to promote growth in the sector. The plan targets to:

• Increase turnover to US$ 122 billion–US$ 159 billion by 2016 from US$ 34

billion in 2006

• Increase export revenue to US$ 35 billion by 2016

• Provide employment to additional 25 million people by 2016

Road Ahead

Going forward, the automotive component industry in India displays strong potential

in generating employment and promoting entrepreneurship in the country. The series

of new investment plans announced by global and domestic automobile

manufacturers re instates the emergence of India as a global hub for auto

components.

The boost in demand, with the growth of the automobile industry, will see the

emergence of several new players in the industry. The huge market for auto

components, and the diverse products and technology involved ensures a place and

15

role for many. Among the smaller players in the unorganized segment, the industry

could witness a shift from being standalone companies, to entering into either contract

manufacturing or being ancillary units. The newly defined rules of specialisation,

development and delivery, hold the key to success in the auto component industry.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

16

Firstcall India Equity Research: Email – info@firstcallindia.com

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

D. Ashakirankumar Automobile

A. Rajesh Babu FMCG

H.Lavanya Oil & Gas

Dheeraj Bhatia Diversified

Manoj kotian Diversified

Nimesh Gada Diversified

Firstcall India also provides

Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate

restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &

Execution, Project Financing, Venture capital, Private Equity and Financial

Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071

Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089

E-mail: info@firstcallindiaequity.com

www.firstcallindiaequity.com