Capacity addition, entry into VAP to drive margins. Consolidated installed capacity is expected to rise ~23% over FY22-27, making it the fastest growing in steel wires. It operates in three verticals: high and low carbon steel wires and stainless-steel wires, through its Dadri (UP) mother facility and is venturing into a fourth, speciality wires catering to automobiles and infrastructure. VAP wires with specific applications command a premium to commodity grade steel wires and increased capacity is expected to drive EBITDA margins from 4.8% in FY22 to 7.8% by FY27. At ~80% capacity utilization, we believe VAP to contribute >12% to FY27e consolidated EBITDA. Further, once the Dadri plant is fully ramped up along with strong manufacturing integration, it is expected to overetake Tata Steel as the largest steel wire manufacturer in India.
Dadri facility to drive growth. The ~35-acre plant is the largest single-site steel wire plant in India (~0.3m tonnes installed capacity), with further ~0.12m tonnes expected to come on stream by H1 FY26 (infrastructure in place to scale up to 0.6m tonnes). At peak utilisation, the plant has potential to generate ~Rs35bn revenue (equal to FY25 consolidated Rs35bn revenue).
Diversified portfolio. The company manufactures a wide gamut of products across 3,000+ SKUs catering to >5,000 customers across 8-9 sectors. None of the customers/sectors contribute >5%/25% of revenue, which helps mitigate risks. Further, to mitigate pricing risk, the company offers products across price points directly to customers. Further, its ‘cost plus’ model helps it maintain EBITDA margins of 6-8%, despite commodity price fluctuations.
Valuation. The company is the fastest growing in steel wires, and we expect a 24% sales volume CAGR, >25% revenue CAGR, >26% EBITDA CAGR and >29% APAT CAGR over FY25-27. As we expect it to continue growing at a similar pace over the next decade driven by its next phase of expansion (incl. VAP), better utilisation and RM integration, we assign a 1.2x PEG to derive the TP. With a long track record of profitability, the company has consistently raised market share; once the Dadri plant is fully commissioned (by H1 FY26), this is expected to cross 7%. In line with the consistent capacity increase and sales volumes along with 8-9% CAGR in domestic steel wire demand, the company has potential to raise its market share further to ~12-15% over next decade. We initiate coverage on the stock with a Buy and a TP of Rs550. The stock now trades at 24x FY27e P/E. Key risks: Raw material price fluctuations, delay in ramping up the Dadri/Sanand plants and non-receipt of approval from customers
