Result Update: Sterling Tools Ltd - ACCUMULATE - TP Rs.361 - Kotak

STL reported strong YoY growth in revenues. However, rising raw material prices impacted EBITDA and PAT. Company's 2QFY19 results came in better than estimated on account of healthy revenue growth.

Key highlights

STL reported revenue of Rs1,393 mn, 21% growth over corresponding period last year. Volume growth in the commercial vehicle/ two wheeler segment and higher demand for models catered to by the company (in the passenger vehicle segment) supported growth. On the back of steep increase in raw material prices (in the past 12 months), EBITDA margin declined from 22.9% in 2QFY18 to 19.2% in 2QFY19. Given subdued EBITDA growth, PAT in the quarter grew by mere 3.5% as against 21% increase in revenue.

Outlook ad Valuation

- For STL, majority revenue comes from supplying fasteners to the domestic OEM's across segments. Companies in the commercial vehicle and the tractor segment has indicated towards positive demand sentiments. While growth has slowed down in the two wheeler and passenger vehicle segment, we expect the same to improve gradually in the coming quarters. Overall, we expect positive YoY revenue growth trend for the company to continue going ahead. Given input cost pressures, we expect EBITDA margin for the company to witness contraction in FY19. We retain ACCUMULATE rating on the stock with revised price target of Rs361 (earlier Rs418).

Shares of STERLING TOOLS LTD. was last trading in BSE at Rs.350 as compared to the previous close of Rs. 335.1. The total number of shares traded during the day was 2234 in over 183 trades.

The stock hit an intraday high of Rs. 354.4 and intraday low of 330.45. The net turnover during the day was Rs. 766922.

Source : Equity Bulls

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