Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sterling Tools Ltd (BOM:530759, Financial) reported a 9.6% year-over-year increase in total income from standalone business, reaching INR162.9 crores.
- EBITDA increased by 14.5% year-over-year, with margins improving from 14.1% to 14.8%.
- Profit after tax surged by 41% year-over-year, reaching INR11.4 crores.
- The company's SGEM segment saw a significant revenue growth of 62% year-over-year, increasing its share in the overall business from 33% to 43%.
- Sterling Tools Ltd (BOM:530759) has added new customers in the three-wheeler and LCV space, as well as in the entry-level electric scooter space, indicating potential future revenue growth.
Negative Points
- The demand for automobiles was muted during Q1 FY25, which could impact future revenue growth.
- The LCV category's contribution to overall revenue remains small, and its growth is dependent on government policy announcements.
- High customer concentration remains a concern, with the top five customers contributing over 90% of SGEM revenue.
- The company has not made any price hikes in the fastener business, relying solely on volume growth.
- Capacity utilization at the Bangalore plant is currently at 45-50%, indicating underutilization and the need for further balancing CapEx.
Q & A Highlights
Q: How should we look at our growth vis-a-vis the industry growth for FY25?
A: For our standalone business, we are up close to 10%. We believe we have done better than the industry, growing almost 2 percentage points faster than the industry.
Q: Out of the overall revenue from SGEM, what is the contribution for the LCV category?
A: The LCV category is still a small percentage of our total revenue. We expect it to be 10% of our total revenues by the third and fourth quarters, depending on government announcements on FAME-III or other policies.
Q: How do we see the overall demand for personal vehicles in FY25?
A: The industry seems to be moving slowly in the first quarter. We believe our first quarter is representative of where we see our business this year, a couple of percentage points plus on that.
Q: What are the developments with Yongin?
A: We have made good progress in discussions with customers and business plan creation. We hope to see some developments by the end of this fiscal year.
Q: What is the revenue contribution from top five customers in SGEM and how are we looking to reduce high customer concentration?
A: The top five customers contribute well north of 90% of our revenue. We are continuing to look at other customers to reduce concentration, but the market is consolidated, so top 5 or top 10 concentration will remain high.
Q: Are we working with our top customers to manufacture anything for new model launches?
A: Yes, we are working with companies on programs that are two to three years out, including models they will launch in FY26 and beyond.
Q: How do we see the raw material pricing for FY25 and its impact on margins?
A: Commodity prices, including steel, are quite stable. The impact on margins is marginal due to pass-through mechanisms with customers.
Q: What is the current export share and are we looking to increase it?
A: Our current export share is 3%. We are working on some programs but do not have hard visibility on numbers or percentages today.
Q: What is the CapEx estimated for FY25 and what areas will it be invested in?
A: We are looking at a CapEx plan of about INR55 crores, nearly split equally between our businesses.
Q: How should we look at Sterling Tools in three to five years, and what would be the contribution from new businesses?
A: We believe new businesses will contribute 60% to 65% of revenue going forward, up from the current 43%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
