Buy in the dip stock: Steel Strips Wheels Limited

Let’s talk about a stock called Steel Strips Wheels Ltd in the automobile makers. Recently, it’s been hanging around an indicator called the 200-day exponential moving average (EMA) in the stock market. This indicator helps us see long-term trends.

Now, the interesting part is that Steel Strips Wheels Ltd is close to this 200-day EMA. That raises some questions: Is it just a temporary drop in its usual success, or is something big changing for the company? We’re going to dig into the technical details and look at recent events to figure out if Steel Strips Wheels is a hidden opportunity for smart investors or just a temporary distraction in the busy stock market.

Let’s explore the technical side and see if this stock is a potential gem or just a mirage.

Technical Analysis – Steel Strips Wheels Ltd 

Steel Strips Wheels Ltd is engaged in the manufacture of wheel rims.

The stock price of Steel Strips Wheels has experienced a 15% decline from its 52-week high and is currently trading close to the 200-day Exponential Moving Average (EMA) along with minor support levels. Recent observations indicate a crossover in short-term moving averages, signalling a potential minor drawdown and consolidation, indicative of a forthcoming accumulation phase. Despite dry volumes, they remain higher than the daily average.

Key levels to monitor include the Rs 300 mark, which is anticipated to serve as a resistance point, representing a potential breakout region for the stock to establish new highs. On the downside, the zone between the 200-day EMA and Rs 215 is expected to act as a robust support zone, providing a buffer in the event of heightened volatility.

Analysis of the Relative Strength Index (RSI) reveals that the stock is currently in the oversold region. Anticipation of a rebound is supported by the observed V-shape recovery on shorter timeframes. Notably, trading volumes exceed the daily average, indicating increased activity in the stock. In the very short term, the overall outlook remains neutral, albeit slightly inclined towards a bullish bias.

Fundamental Analysis 

The market capitalisation of the company stands at Rs 3,955 crore, with the current stock price at Rs 252. Over the past year, the stock has seen a high of Rs 299 and a low of Rs 126. The stock’s price-to-earnings ratio (P/E) is 20.7, and the book value is Rs 78.2. The price-to-book value ratio is 3.24, and the industry P/E stands at 32. The company has demonstrated a solid Return on Capital Employed (ROCE) at 21.4% and a Return on Equity (ROE) of 18.6%.

In terms of financial performance, the company has shown robust sales growth over the last three years, with a notable 37.2% increase. The recent sales growth is 2.50%. The debt-to-equity ratio is 0.68, indicating a balanced financial structure.

Promoter holding is substantial, at 62.3%, reflecting confidence and commitment from the company’s key stakeholders. The profit after tax is reported at Rs 191 crore, and the intrinsic value is estimated at Rs 187. Cash flow from operations stands at Rs 348 crore, and the company holds Rs 36.7 crore in cash equivalents. The pledged percentage of shares is relatively low at 4.92%.

The company has consistently shown growth in sales over the given period, reaching a peak of 1,134 in March 2022. This indicates a positive trend in revenue generation. The operating profit has generally increased over time, However, there is a slight dip in June 2022. The net profit follows a similar pattern, with an overall increase. It peaked at 63 in June 2021 but experienced fluctuations thereafter.

FIIs and DIIs have increased their stake in the September quarter from 5.63% to 6.05% and 1.23% to 2.12%, respectively. Additionally, Tata Steel holds a 6.94% stake in this company.

Recent Development 

In a recent update following the NCLT’s approval, the Board of Directors met on January 9, 2024, to discuss the resolution plan for AMW Auto component Limited (AACL). Steel Strips Wheels Limited (SSWL) will infuse funds into AACL by subscribing to 5 million equity shares at Rs 10 each, totalling Rs. 50 million, and providing an inter-corporate loan of Rs. 133.15 crores. This amount will settle all financial obligations of AACL, and in return, SSWL will become the sole owner of AACL.

The company is looking to expand its presence in alloy wheels with global passenger car segment customers. They are focusing on developing this segment of the market to become globally competitive and take market share.

Steel Strips Wheels Ltd presents a nuanced scenario for investors. The stock’s proximity to the 200-day EMA and recent consolidation suggests a start of an accumulation phase or a buy-on-dip opportunity. The oversold RSI and positive financial indicators, including robust sales growth and low debt, paint a positive picture. The recent strategic move to acquire AMW Autocomponent Limited further signifies the company’s commitment to expansion and global competitiveness in the alloy wheels market. Investors should keenly monitor these developments, considering the stock’s potential for a rebound and future growth opportunities.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.