Europe And South America Expansion Will Drive Export Growth

Key Takeaways

• Expansion into value-added products and new export markets is strengthening earnings visibility, boosting margins, and driving multi-year growth opportunities.
  
• Automation, capacity enhancements, and favorable industry trends are enhancing operating leverage and competitive positioning, leading to improved profitability and returns.
  
• High capital expenditure, export market risks, slow growth in steel wheels, and limited innovation threaten profitability, competitive position, and financial stability.

Catalysts

Engages in the design, manufacture, and sale of automotive wheel rims and other auto components in India and internationally.

• The company is actively diversifying its export markets beyond the U.S., with a robust growth trajectory in Europe and South America-helped by rising European OEM orders and competitive advantages from lower production costs-positioning SSWL to benefit from increasing global auto production and infrastructure spending, which is likely to drive higher export revenues and improved earnings visibility.
  
• SSWL is accelerating its expansion into higher value alloy wheels and new product lines like aluminum knuckles, both of which are gaining market share and have higher margins than traditional steel wheels. This product mix shift is expected to support margin expansion and stronger net profit growth.
  
• Rising automobile penetration, last-mile connectivity needs in India, and favorable infrastructure spending are expected to spur demand across passenger and light commercial vehicles, enabling SSWL to utilize higher plant capacity, increase volumes, and achieve better operating leverage, which would positively impact revenue and EBITDA.
  
• Growing preference among OEMs for outsourcing to integrated, technologically advanced suppliers, amid manufacturing cost challenges in Europe, places SSWL in a strong position to win new export business and boost wallet share with global automakers, supporting multi-year top line growth and improved profitability.
  
• Continued government emphasis on Make in India and export competitiveness, combined with SSWL's ongoing focus on automation and capacity expansion, should lower per-unit production costs and facilitate margin improvement, contributing to healthier long-term earnings and return on capital employed.

Steel Strips Wheels Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Steel Strips Wheels's revenue will grow by 10.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 7.2% in 3 years time.
• Analysts expect earnings to reach ₹4.5 billion (and earnings per share of ₹28.54) by about August 2028, up from ₹2.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, down from 17.0x today. This future PE is lower than the current PE for the IN Auto Components industry at 29.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.95%, as per the Simply Wall St company report.

Steel Strips Wheels Future Earnings Per Share Growth

Risks

• Continued high capital expenditure and increased depreciation, as seen over the last several years, could weigh on profitability if volume ramp-up or new business wins do not offset these higher fixed costs, potentially limiting growth in net margins and PAT (Profit After Tax).
  
• Exposure to U.S. tariffs and export market uncertainty, despite management's derisking strategy, could pressure future export revenues and slow margin expansion if volumes shift more than anticipated or if new geographies do not scale quickly.
  
• Ongoing shifts in automotive preferences from steel to alloy wheels, with steel wheel segment expected to grow only 1–2% annually, raises a risk of underutilization of existing steel wheel capacities and slower revenue growth in the core product line.
  
• Evolving customer and industry focus on lighter, more advanced, and sustainable wheel solutions-coupled with the company's reluctance to enter the two-wheeler or lower-margin segments and the lack of mention of major R&D breakthroughs-may threaten long-term competitive positioning and future earnings growth.
  
• Elevated net debt (projected at ₹850–900 crores by year-end) amidst capital-intensive expansions, especially into alloy wheels and knuckles, could increase interest expenses and financial risk if end-demand softens, further hampering net profit growth and return on capital.

Valuation

• The analysts have a consensus price target of ₹290.0 for Steel Strips Wheels based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹62.6 billion, earnings will come to ₹4.5 billion, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 15.0%.
  
• Given the current share price of ₹218.45, the analyst price target of ₹290.0 is 24.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.