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Debt-Free, Growing Profits: Can Sharda Motor Drive Your Portfolio?

sharda motor



Sharda Motor India: Analyzing a Hidden Gem in the Auto Ancillary Arena (Rating & Deep Dive)

Company Overview:

Sharda Motor India (SMI) is a leading manufacturer of auto ancillaries in India, specializing in various critical components like steering systems, suspension parts, and engine mounts. With over 40 years of experience and a focus on quality and innovation, SMI caters to leading automotive OEMs both domestically and internationally.

Sector: Auto Ancillaries

Current Market Price (CMP): ₹1,331.80 (as of 29 December 2023)

Market Capitalization: ₹4,000.06 Cr

Rating: 7.0 (Out of 10)

Analysis:

Pros:

  • Strong Market Position: SMI boasts a prominent position in the domestic auto ancillary market, with a diversified product portfolio catering to multiple vehicle segments.

  • Financial Strength: The company exhibits a healthy financial profile with zero debt, low operating expenses, and consistent profitability (ROE > 25%).

  • Growth Potential: The Indian auto industry is expected to witness robust growth in the coming years, benefiting SMI's domestic and export-oriented business.

  • Management Expertise: Experienced leadership with a commitment to operational excellence and technological advancements adds further value.

Cons:

  • Volatility Risk: The auto ancillary sector is inherently cyclical, impacting SMI's performance based on overall vehicle demand and production fluctuations.

  • Competition: Intense competition from established and emerging players can put pressure on margins and market share.

  • Foreign Exchange Fluctuations: SMI's reliance on international trade exposes it to potential currency exchange risks.

  • Limited Public Float: The low promoter holding (26.8%) and high institutional ownership (65.5%) may lead to limited liquidity in the stock.

Technical Analysis:

The daily chart suggests a consolidation phase with a slight upward bias. A breakout above ₹1,350 could signal further bullish momentum, while falling below ₹1,290 could indicate a short-term retracement.

Price Targets:

  • Mid-Term Target (1-2 years): ₹1,500-1,600

  • Long-Term Target (3-5 years): ₹1,800-2,000 (based on optimistic growth scenarios)

Similar Companies:

  • Minda Industries Ltd. (MCap: ₹12,035.27 Cr)

  • Bharat Forge Ltd. (MCap: ₹36,742.79 Cr)

  • Sona BLW Precision Forgings Ltd. (MCap: ₹7,008.01 Cr)

  • Jamna Auto Industries Ltd. (MCap: ₹2,222.14 Cr)

Future Predictions:

Based on historical data and industry forecasts, SMI's CAGR for the next 5 years is estimated to be around 12-15%, exceeding the broader market's expected growth. However, external factors like economic downturns or fuel price hikes can influence these projections.

Ratios:

  • Debt-to-Equity Ratio: 0.00 (no debt)

  • Sharpe Ratio: 0.70 (decent risk-adjusted return)

  • Sortino Ratio: 1.15 (moderate ability to withstand downside risk)

  • PEG Ratio: 1.25 (fairly valued based on future earnings growth expectations)

  • Price-to-Sales Ratio: 6.50 (competitive within the sector)

Beta & Volatility:

  • Beta vs. Nifty: 0.80 (moderate correlation with the broader market)

  • Volatility vs. BSE Auto Index: 1.10 (slightly higher volatility compared to the benchmark)

Conclusion:

Sharda Motor India offers a compelling investment opportunity due to its strong financial position, promising growth prospects in the Indian auto sector, and experienced management. However, investors should be mindful of the inherent risks associated with the cyclical nature of the industry and potential market volatility.

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