Sterling tools - medium to long term bet

Company Profile :-

Sterling Tools (STL), originally incorporated as a private limited company became a public limited company in October 1994. STL is engaged in the manufacture of high tensile (HT) fasteners mainly for automobiles and the reengineering industry at its plants situated at Faridabad (Haryana).

Why to Buy - 

1. Auto sector performance is improving and so is sterling tools performance will improve -

STL supplies to diverse segments like two-and four-wheeler passenger transport,goods transport, tractors and farm equipment. Over the years, its clientele hasexpanded to include most of the major automobile OEMs like Eicher, Escorts, Bajaj Auto, Maruti Suzuki, Hero Honda and Tata Motors. CV segment constitutes 29% ofs ales followed by farm equipment 22%; passenger cars 18% and replacement market 12%. The rest is accounted by engineering segment and exports.

2. One of the leading provider of fasteners in India and long growth story -

While mild steel fasteners are produced by the unorganized sector and used in general applications, high-tensile (HT) fasteners require a relatively superior technology and hence are chiefly manufactured by the organized sector. STL known in the industry for its indigenous development of requisite technical skill for 30 years has wide product range, which includes over 2000 types of fasteners. Today, it is among the leading OEM suppliers in India serving the needs of leading automotive companies in India, Europe and USA.

3. JV and export business has potential -

STL, in December 2009 entered into a 50:50 JV with Netherlands-based Borstlap Masters in Fasteners Group B.V, (FABORY). The JV aims to capitalize on the fast growing demand for non-automotive fasteners in the emerging markets in South Asia. The JV will be incorporated in due course and plans to trade under “Sterling FABORY.” FABORY has more than 110 branches and is present across 16 countries. It is a leading global distributor, technical service provider and supply chain and vendor management provider of fasteners, tools, and industrial supplies. Management is confident to do break even for JV in Financial year of 2015- 2016

Risks -

1. Heavily dependent on auto sector-

If any government policy change which hamper auto sector growth, can make adverse effect on fastener company sterling tools.

2. Top line is not growing - 

From last few quarters company has posted flat topline which is little worrisome factor.

View on stock -

Promoter holding of 70 %, Decline in finance cost, Good dividend payout, increase in bottom line despite flat top line last year, increased Auto numbers in recent months. Decent management are positive factors of the company which attracted us to dive into this company. At CMP of 320 company is trading at 13 PE of FY14. We recommend to buy the stock on dips around 280-290 range for investment of medium to longer term.