Sharda Motor: PAT up 44% & Revenue up 5% in 9M-24 at a PE less than16
Sharda Motor: PAT up 44% & Revenue up 5% in 9M-24 at a PE less than16
Legislative tailwinds leading to higher content per vehicle, SHARDAMOTR has guided to grow 10% faster than automobile industry. Available at reasonable valuations. 19% of the market cap is in cash
1. Auto-ancillary Company
shardamotor.com | NSE: SHARDAMOTR
Exhaust Systems - Indian Market Share of ~30%
Suspension Systems - Indian Market Share of ~10%
Strategic Partnerships
Purem (Formally known as Eberspaecher), Germany (CV exhaust systems)
Kinetic Green, India (EV Battery)
Bestop Inc. USA (Roof Systems)
2. FY19-23: PAT CAGR of 157% & Revenue CAGR of 188%
3. Strong H1-24: PAT up 35% & Revenue up 7%
Catalyst used in exhaust systems is no longer procured by SHARDAMOTR and explains the impact on top-line
But on the other hand, if a customer really insists that due to business model reasons that they want us to procure the catalyst, then we would, but it would be a strong exception. We are trying our best that for all the new business that we are developing, it would be without the catalyst.
4. Strong Q3-24: PAT up 64% & Revenue is flat YoY
Strong margin improvement both YoY and QoQ
5. Strong 9M-24: PAT up 44% & Revenue is up 5% YoY
Strong margin improvement
6. Business Metrics: Strong return ratios
Debt free with surplus cash above INR 658 crores as on 30th September 2023
Rs 658 cr cash & end equivalents on a market cap of Rs 3,929 cr implies 17% of market cap is in cash
6. FY24: Strong outlook
i. Strong Tailwinds - Leading to increase in content per vehicle
ii. FY25 & FY26 guidance to repeat momentum of last 2-3 years
We don't give any specific guidance in terms of numbers, but we remain to be very optimistic. And in a longer-term period to have a similar growth pattern that we've seen in the last couple of years. But as such, in terms of numbers, we don't have any guidance that we are giving at this point.
iii. Growth without significant capex
Capex will remain to be incremental, how it has been. There will be different stages but it will all remain to be incremental for the next 2, 3 years and a similar pattern, maybe slightly higher, lower, depending how it's been for the last couple of years. And it will be taken more than enough by the profitability that we are expecting.
iii. Potential for inorganic growth in power train agnostic products
We have a significant amount of liquidity. And do remain to be debt free. In addition to that, we also have a few surplus line. So our first preference has always been to utilize this for an M&A opportunity. But at the same time, we are long-term focused as well as very conservative when it comes to valuations on products. So we are working on various opportunities, and there is no time line in terms of M&A.
7. PAT up 44% & Revenue up 5% in 9M-24 at a PE less than16
8. So Wait and Watch
If I hold the stock then one may continue holding on to SHARDAMOTR
Coverage of SHARDAMOTR was initiated after Q4-23 results. The investment thesis has not changed after a strong 9M-24. The only changes are the delivery of a strong Q3-24 and the increased confidence in the management to deliver a stronger FY24
Top-line growth in 9M-24 at 5% looks very weak however, SHARDAMOTR is using gross profit growth as the proxy of volume growth. Gross profit as an indicator needs to be watched
So if you look at gross profit as an indicator growth in gross profit, it generally correlates with volumes. But of course, with various caveats attached to it, I would say, for the time being, it's better to monitor gross profit. We are also monitoring the movement vis-a-vis gross profit and industry volume growth.
Strong outlook to outgrow industry by 10%
So our guidance that our sales/gross profit would be up more 10% versus industry has been there, and we will continue to see that as well as our content per car increase this time.
9. Join the ride
If I am looking to enter SHARDAMOTR then
SHARDAMOTR has delivered PAT growth of 44% and revenue growth of 5% in 9M-24 at a PE less than 16 which makes the valuations reasonable.
SHARDAMOTR generated Rs 155 cr of free cash flow in H1-24 on a market cap of Rs 4,231 cr which translates into a free cash flow yield of 3.7% (not annualized) which makes valuations quite reasonable. The outlook for future free cash flow generation is strong given low CAPEX requirements
Projects in pipeline requiring only incremental CAPEX with high cash generation ability
Rs 791 cr cash & end equivalents as of Q3-24 end on a market cap of Rs 4,231 cr implies 19% of market cap is in cash adding a strong margin of safety to the valuations
On the balance sheet front, we continue to remain a debt free company as on 31st December 2023, with surplus cash and cash equivalent Rs.688 crores and Rs.103 crores in mutual fund and bonds.
Previous coverage of SHARDAMOTR
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