Broker’s call: Shriram Pistons (Buy)

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Target: ₹2,450

CMP: ₹2,165

Shriram Pistons & Rings (SPRL’s) maiden investor call reinforces our positive stance on the company.

KTAs: Strong growth visibility guidance for the core IC business, with market-leading growth, sustained high profitability led by well-diversified mix (no segment share over 17-18 per cent of revenue) and utilisation at about 75 per cent with fungible lines offering growth headroom; SPRL is leading the disruption, as in the past, backed by tech-leadership & R&D efforts, with OEMs on multiple newer powertrain options; seeing strong export tailwinds from global OEMs as the ‘last man-standing’ for ICE components; accelerating diversification efforts in EV-specific and engine-agnostic parts, incl. via M&As; invested ₹70 crore in Coimbatore for land backed by new order wins in EV components.

Multiple new powertrains are emerging in ICE (e.g. CNG, LNG, hydrogen, hybrids, flex fuels, ethanol, etc); SPRL believes these will co-exist with EVs and is, accordingly, investing in related product development (via both, technological partnerships and in-house R&D).

Strong cash generation in the core business is enabling such investments for growth and diversification. The strong margin improvement in recent years has been on account of multiple actions across improving productivity, efficiency, capacity utilisation as well as cost initiatives (e.g. renewable power sources); such actions are sustainable.