Expanding EV And Hybrid Platforms Will Unlock Future Opportunities

Key Takeaways

• Strategic expansion into EVs, diversified export markets, and non-automotive sectors positions the company for long-term growth and reduced market dependence.
  
• Operational improvements and strong R&D spending support higher margins, steady earnings, and multiple sources of revenue diversification.
  
• Heavy reliance on core automotive OEMs, early-stage diversification efforts, and cyclical cost advantages expose Sundram Fasteners to export volatility, margin risks, and uncertain growth visibility.

Catalysts

Manufactures and sells components for the automotive, infrastructure, wind energy, aerospace, defense, farm equipment, industrial, aviation, and other sectors in India, China, the Americas, and internationally.

• The company's proactive participation in new EV and hybrid vehicle platforms for both domestic and international markets positions it to benefit from rising global adoption of electric and hybrid vehicles, indicating growing future revenue streams and higher content per vehicle.
  
• Increased export opportunities driven by global OEMs diversifying supply chains away from China toward India (China+1) and ongoing expansion of Sundram's European customer base are likely to support volume growth, export revenue, and reduce dependency on any one geography.
  
• Participation in secular shifts within the domestic automotive industry-such as a move toward higher-tonnage commercial vehicles, SUVs, and high-horsepower tractors-has expanded product share and mix, driving higher average realizations and supporting revenue and EBITDA growth.
  
• Strong R&D investment and expansion into wind energy, aerospace, railways, and defense verticals create multiple avenues for long-term revenue diversification and reduce exposure to cyclicality in core auto segments.
  
• Ongoing operational efficiencies-including greater use of renewables, improved procurement, stable working capital, and digital supply chain improvements-are set to enhance gross margins and EBITDA, supporting steady earnings expansion.

Sundram Fasteners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sundram Fasteners's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.1% today to 10.8% in 3 years time.
• Analysts expect earnings to reach ₹8.5 billion (and earnings per share of ₹40.25) by about August 2028, up from ₹5.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 46.1x on those 2028 earnings, up from 36.5x today. This future PE is greater 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 14.27%, as per the Simply Wall St company report.

Sundram Fasteners Future Earnings Per Share Growth

Risks

• Management commentary indicates ongoing uncertainties and demand slumps in export markets, particularly North America, due to evolving emission norms, tariff-related issues, and unclear market schedules, posing risks of inconsistent export revenues and overall sales growth.
  
• The company expects its aftermarket segment to remain limited at around 10–15% of total revenue due to the strong focus and commitments to OEMs, restricting its ability to diversify and grow more stable, higher-margin aftermarket sales, potentially impacting revenue resilience and margin improvement in the long-term.
  
• Sundram Fasteners' growth in new sectors like wind energy, defense, railways, and aerospace is still in early stages or ramp-up phase, meaning these segments may not offset sluggishness or slowdowns in their core automotive business in the near to medium term, creating possible headwinds for overall top-line growth and earnings visibility.
  
• Margin expansion in recent quarters has been supported by favorable raw material prices, foreign exchange movements, and lower freight and power costs, all of which are cyclical and potentially unsustainable; increases in steel prices or reversal of forex trends could erode gross margins and EBITDA in future periods.
  
• The company's ability to fully capture the EV and hybrid vehicle market opportunity remains dependent on customer production schedules and market demand (e.g., delays in GM and Stellantis EV orders), suggesting that if Sundram Fasteners struggles to quickly scale up next-generation product supply or if the EV transition accelerates faster than their pivot, revenue and margin growth could be at risk.

Valuation

• The analysts have a consensus price target of ₹1244.25 for Sundram Fasteners based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1576.0, and the most bearish reporting a price target of just ₹980.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹78.2 billion, earnings will come to ₹8.5 billion, and it would be trading on a PE ratio of 46.1x, assuming you use a discount rate of 14.3%.
  
• Given the current share price of ₹947.0, the analyst price target of ₹1244.25 is 23.9% 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.