Detailed Narrative
Strong FY25 Consolidated Performance Driven by SGEM and Standalone Growth
Sterling Tools reported a consolidated revenue of INR1,038 crores for FY25, marking a 10.6% year-on-year increase from INR938 crores, achieving the INR1,000 crore milestone for the first time. This growth was primarily fueled by strong performance in its subsidiary, SGEM, and a stable 6.2% year-on-year growth in the standalone business. Consolidated adjusted EBITDA rose by 13.8% to INR132.4 crores, with margins expanding to 12.8% from 12.4% last year. The company also achieved a 10.5% PAT growth in its standalone business, reaching INR42.9 crores.
Q4 FY25 Standalone Business Impacted by Auto Slowdown and Steel Prices
The standalone business experienced a 1% degrowth in Q4 FY25, with total income at INR165 crores. This was attributed to a slowdown in the broader auto industry, particularly negative growth in commercial vehicles and marginal growth in passenger vehicles, coupled with steel price reductions leading to provisions. Despite these headwinds, the standalone EBITDA margin for Q4 stood at 15.1%, with PAT at INR11.3 crores.
SGEM Faces Headwinds from Ola In-sourcing, Leading to Expected 'Down Year'
The consolidated revenue for Q4 FY25 degrew to INR206 crores from INR270 crores in the previous year, primarily due to lower revenue from the SGEM subsidiary. This decline is largely a result of Ola Electric's decision to in-source the manufacturing of motor control units for its Gen 3 platform. Management anticipates a 'down year' for revenue in FY26 and potentially not returning to FY25 levels even in FY27, as the company works to diversify its customer base and product offerings. SGEM's MCU sales were down by approximately 60% year-over-year in Q4, from 100,000 units to 40,000 units.
Strategic Diversification into New EV Product Lines and Customer Segments
Sterling Tools is actively diversifying its product mix beyond fasteners and traditional EV components, with a long-term goal of 50% revenue from non-fastener businesses by 2030. New product introductions include onboard chargers, DC/DC converters, and magnet-free motors, expected in early FY26. The company is also investing INR50 crores in a new Power Transmission segment facility, targeting INR200 crores in revenue by 2030. They are currently engaging with over 30 EV customers across various categories, aiming to shift the EV portfolio mix to 40% from 3-wheelers and commercial vehicles, a significant change from last year's 90% reliance on 2-wheelers.
Focus on Power Electronics Competence and Magnet-Free Motor Technology
The company is building a comprehensive power electronics competence to support various levels of integration required by OEMs, rather than focusing on single components. A key development is the partnership for magnet-free motors, which are expected to have a BOM cost similar to or lower than permanent magnet motors, while eliminating dependence on China's supply chain for rare earth magnets. This project is slated to kick off in January 2026. Additionally, they have budgeted INR10 crores for high-voltage DC contractors and relays in FY26, with a target of INR30-35 crores for FY27.
Healthy Capital Structure and Investment in Capacity Expansion
Sterling Tools maintains a strong financial position, being 'pretty much net debt-free' with INR12 crores of surplus cash. The company invested INR59 crores in capex during FY25, primarily for SGEM facility upgradation, capacity enhancements, and new product segments. ICRA upgraded the company's long-term rating from AA- stable to AA- positive, reflecting improved financial health. New businesses are targeted to achieve a Return on Capital Employed (ROCE) of 25% plus within the next five years.