Going ahead, we expect STL to report net sales CAGR of ~14% over FY2014-16
to ~`394cr owing to recovery in automobile sales volumes in both domestic as
well as export markets. This will lead to recurring business opportunities for auto
ancillary companies like STL. Going ahead, the company would improve its
volume growth in the fasteners segment driven by healthy volume growth from
OEMs customers like Honda Motorcycle & Scooters India, Maruti Suzuki India, Tata
Motors, Ashok Leyland, Daimler, Fiat, Hero Motocorp, Mahindra & Mahindra,
Volvo, Eicher, TAFE and General Motors.
On the profitability front, we forecast STL to report a net profit CAGR of ~20%
over FY2014-16 to ~Rs23cr owing to healthy sales and better operating margins
due to better product mix and cost effective management strategy.
At the current market price of Rs332, the stock trades at a PE of 12.1x and 10.0x
its FY2015E and FY2016E EPS of Rs27.4 and Rs33.1, respectively. We initiate
coverage on the stock with a Buy recommendation and target price of Rs397, based
on 12x FY2016E EPS, indicating an upside of ~20% from the current levels.