Steel Strips Wheels Limited: Navigating Global Headwinds with Strategic Diversification

Steel Strips Wheels Limited (SSWL), a prominent player in the automotive wheel manufacturing sector, has released its financial performance for Q2 and H1 FY26, revealing a period of strategic recalibration amidst global economic shifts. On a standalone basis, the company reported a healthy top-line growth, with revenues from operations reaching INR2,387.4 crores for H1 FY26, marking a 12.6% increase year-on-year. While gross profit grew by a robust 10.2% to INR842.4 crores, the EBITDA remained flat at INR234.0 crores, with margins experiencing pressure primarily due to a slowdown in exports.

The company's performance highlights a clear divergence between its domestic and international segments. The alloy wheel segment emerged as a star performer, delivering exceptional growth and increasing its contribution to total revenue to 36% in H1 FY26, amounting to INR860.7 crores. This growth was instrumental in sustaining overall business margins. The newly launched aluminum knuckles segment also showed promising traction, generating INR33.2 crores in revenue and contributing 1% to the total, already breaking even. In contrast, the steel wheel segment, while still the largest contributor at 63% (INR1,493.5 crores), faced challenges.

Financial Snapshot: H1 FY26 Performance

Strategic Shifts and Growth Drivers

SSWL's management has been proactive in adapting to the evolving market landscape. The slowdown in exports, particularly to the US market due to stringent 53% tariffs, significantly impacted profitability. In response, the company has strategically increased its focus on European markets, where the contribution to total exports has risen to 52% in H1 FY26. This diversification strategy includes two new programs with European OEMs already underway for aluminum wheels, with two more expected to start in Q4 FY26, and four new programs awarded for the next financial year.

Domestically, the auto industry is experiencing strong momentum, supported by recent GST reforms. Management anticipates continued positive trends for passenger vehicles, tractors, and two-wheelers. The company's strategic initiatives also include significant capacity expansions. The aluminum knuckles capacity is being scaled from 0.3 million to 0.5 million units per annum by year-end FY26, with a target of 1 million units by September/October 2026. This expansion is crucial as knuckles are seen as a mandatory component for Electric Vehicles (EVs) and a growing trend for Internal Combustion Engine (ICE) vehicles. Additionally, steel wheel capacity for the tractor segment has increased by 40%, and an extra 0.5 million units for commercial vehicles are being added at the Jamshedpur plant.

Capital Allocation and Future Outlook

SSWL's capital allocation strategy is geared towards growth and improving returns. The company plans a total capital expenditure of approximately INR250 crores for FY26, primarily directed towards alloy wheel and knuckle segments. Management anticipates capitalizing INR300-350 crores worth of projects by March. The company's focus on increasing cash accruals is aimed at fueling growth and debt repayment, ultimately enhancing Return on Capital Employed (ROCE) and Return on Equity (RoE).

Management guidance for FY26 includes a top-line target of INR4,800 crores, with alloy wheel capacity expected to reach 4.0-4.2 million units. The long-term vision projects an EBITDA per component of INR300 over the next 2-3 years. While overall volume growth for FY26 is expected to be a modest 2-3% due to export challenges, the strategic shifts and domestic market strength are expected to drive future performance. The company also maintains a consistent dividend payout history, reflecting its commitment to shareholder returns.

Conclusion: Steering Towards a Diversified Future

Steel Strips Wheels Limited is clearly steering through a period of transition, marked by both external challenges and internal strategic advancements. The company's agility in re-prioritizing markets, coupled with its aggressive diversification into high-growth aluminum products, positions it favorably for future growth. Despite the immediate headwinds from export tariffs, SSWL's disciplined capital allocation, focus on operational optimization, and robust domestic market performance underscore its commitment to long-term value creation. The emphasis on expanding capacity in alloy wheels and aluminum knuckles, alongside a strong pipeline of new programs in Europe, indicates a clear strategic direction towards a more diversified and resilient business model.