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  • Stock recommendation: Sterling Tools Ltd – ACCUMULATE – TP Rs.418

    Publish date: August 13, 2018


    Result Update

    In 1QFY19, STL reported strong growth in revenue, EBITDA and PAT. Strong volume growth across segments in the automobile sector translated into robust performance for STL. Company reported results ahead of our estimate on account of higher than expected growth in revenues.

    Key Result Highlights

    • STL’s revenue in 1QFY19 came in at Rs1,313mn, 34% growth over 1QFY19. High production growth across segments (mainly commercial vehicle segment) led to high revenue growth in the quarter.
    • EBITDA grew by 26% YoY and higher input cost and other expenses led to EBITDA margin declining YoY. Net profit increased from Rs96mn in 1QFY18 to Rs140mn in 1QFY19.

    Valuation & Outlook

    • STL’s majority revenues come from selling fasteners to the auto OEM segment. In 1QFY19, the production remained significantly higher in certain segments (commercial vehicle and tractor) due to high demand and/or low base.
    • While we expect the overall auto segment to witness growth, we believe that growth rate will moderate for certain segments witnessing high growth.
    • On the back of growing demand for automobiles, we expect healthy revenue and earnings growth for STL. We retain ACCUMULATE rating on the stock with unchanged price target of Rs418.

          

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