The company is today ranked number two in the fastener manufacturing space (estimated to be over Rs4,000 crore business in India on the organised side) with specialisation in cold forged hi-tensile fasteners. During its journey of over four decades, the company has added four plants on its manufacturing map – three in Faridabad and one in Bengaluru (this unit also doubles up as R&D centre). Further, it has developed a comprehensive portfolio of offerings that comprises standard fasteners, chasis fasteners, special fasteners and engine fasteners. 

As per a company presentation, direct supply to the OEMs is the major component of the business (as much as 85 per cent), followed by replacement (11 per cent), exports (2 per cent) and others (2 per cent). In terms of segment-specific contribution, the pack is led by commercial vehicle segment. 

“The largest segment in our business is commercial vehicles, followed by passenger vehicles,” informs Aggarwal. “These two constitute about 55 per cent of our revenues. And then our supplies to the two-wheeler companies fetch us about 20 odd per cent”. Farm equipment, retail and exports make up for the remaining part of the revenue. 

The revenue chart of the fastener division in the last four years clearly earmarks a consistent uptick, maintaining a double-digit trajectory as against the industry average of 8-9 per cent. In the stated period, the fastener division’s revenue has grown from Rs370 crore to Rs604 crore at the end of 2022-23.   “In 2022-23, the fasteners segment registered a 27.4 per cent growth in revenues to Rs604 crore, led by a 21 per cent increase in volumes and contributed 78 per cent to total revenues,” says a recent report on the company by a leading brokerage firm. 

Catalyst factor 

Sterling Tools' financial performance chart in recent years incidentally presents an interesting pattern. From 2021-22 onwards, there has been a consistent growth in incremental business (other than the mainstay of fastener business). This subtly tells the story of the catalyst effect coming into the play with its EV vertical commercially taking off.

According to Aggarwal, Sterling Tools has been quite pro-active in spotting opportunity in the EV space, it had started the exercise when EV was more of a buzz than a reality. “Around the middle of the last decade, we were looking for fresh opportunities and we found that EV space is the domain for the not so distant a future,” Aggarwal explains. “We travelled and interacted with a lot of companies in China, Taiwan, Israel and Germany to figure out a specific opportunity. We realised that EV era will usher in soon in India and we wanted to be ready with our offerings for companies in this space”. 

In anticipation of the EV era’s commencement, Sterling forged an alliance with Chinese EV component major Gtake in 2020 forming a subsidiary called Sterling Gtake E-Mobility. “We were able to come to an understanding to form a joint venture with them in 2019. The definitive agreements were also signed. And, after that, the subsidiary was floated,” Aggarwal informs.

Initially, it was supposed to be technical and financial joint venture between the two firms but after Covid , as Chinese investments faced resistance from the government, a subsidiary was formed with Gtake providing full-fledged technical support. 

And the product the partners stumbled upon as their first mainline EV centric offerings is Motor Control Unit (MCU), a major specialisation of Gtake, which has a dominating presence in China as a technology leader for EV and hybrid vehicles.  Going by the standard definition, the MCU is a critical part which is more like an electronics package that operates between the batteries and the motor to control the electric vehicle’s speed and acceleration much like a carburetor does in a gasoline-powered vehicle. 

The EV subsidiary of Sterling made its foray in the segment with this specific line of product for high speed electric two-wheelers, a segment which is on a high rise growth curve, despite recent regulatory hurdles like government’s tough stand on subsidiary dole out to OEMs under FAME scheme. In 2022, over 600,000 two-wheeler EVs were sold in India and, in the recent months, despite pricing pressure owing to reduction in subsidy, the per-month sales trajectory has broadly remained in the above-40,000 units per month level and, in July, it even inched close to 50,000 units. “We have a tie-up with one of the leading players in the segment for last two years and have now also signed a similar bulk supply contract deal with another major 2W OEM known for its EV products,” says Pankaj Gupta, CFO, Sterling, who refused to divulge the names of the OEMs relying on the company for supply of their MCU requirements. 

The increasing earning from non-fastener business is testimonial to the fact that the MCU offerings are probably doing well to help the company make a splash in the EV vertical. With nearly 15 contracts (including small ones) in its kitty, the earning from EV vertical shot up to over Rs170 crore in 2022-23. It marks a significant jump from less than Rs40 crore registered in its debut 2021-22. “On the basis of our current order book, we are expecting a further jump of about Rs300 crore from EV business during the current fiscal,” says Gupta.        

Portfolio expansion 

According to Gupta, the fast-growing EV business in the domestic circuit and Sterling’s pro-active move in taking a strong position vis-à-vis bulk supply of a critical component bodes well for the 40-year-old company. No doubt, it has a formidable base in the fastener business but EV could quickly add more to the topline. “You look at fastener business. Our maximum contribution to a commercial vehicle would amount to Rs2,500-3,000 per unit, with a margin of 14-15 per cent. As against this, our MCU to high speed EVs fetch Rs8,000-12,000 per unit though the margin is somewhat lower.” 

Nothing surprising, Sterling seems all set to expand its EV-specific offering portfolio. In the coming months, it is expected to announce its foray to commence supplying MCUs to light commercial vehicles (it is working closely with a leading OEM in the space), which will mark beginning of a new product line within its EV vertical. According to Gupta, the company is also looking at bringing more products under this portfolio which may include DC chargers and other equipments and tools for the larger green technology domain. 

To be in the forefront of the EV growth curve from the component manufacturing side, the company has also initiated capacity expansion for its MCU production unit, starting the process of enhancing its annual capacity to 500,000 units from the current base of 300,000 units. “We have drawn a capex plan of about Rs200 crore for the next few years to scale up both our verticals. We have low debt on our balance sheet and are comfortable financially. The capex we have planned can easily be met through a mix of internal accruals and external borrowings,” Aggarwal emphasises. And most of Sterling’s near-to-medium run capex play is likely to be devoted to provide more power to the EV business, as the company is targeting a 50 per cent share for this business in the next two-three years.