Sterling tools beat its peers in operating margin

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Sterling Tools beat its Peers in Operating Margin
Sterling Tools has
expanded operating
margin at a time when
its peers are still
struggling with their
figures. This can be
imputed to Sterling's
strategy of dropping
dependence on the
single client and ability
to fetch better prices for
its products. Sterling
Tools Limited is a
supplier of fasteners to
automobile companies.
The move has put
Sterling tools share
price in a stronger
position.
The operating margin stretched sequentially by 551 basis points to 20.9% in the June quarter.
On the other hand, the average margin of the auto ancillary sector dropped by seven basis
point to 11.7%.
Characteristically, in the auto ancillary segment, benefits from lower commodity prices must be
passed to the automobile companies. Conversely, Sterling Tools has been able to confer
better terms with the customer for retaining a generous portion of benefits as it manufactures
low-priced mission critical products where there are few quality suppliers. This has helped the
company to improve its margins consistently in the past eight quarters.
Today, Sterling tools share price skyrocketed making a new high on the account of the
company’s strong Operating Margin.
Also, Sterling Tools is escalating the share of its higher priced fasteners which are used in
transmission, engine, and chassis. The fasteners are priced nearly 10-40% more than
standard fastener, and has few suppliers, thus boosting the average realization. The company,
hence, focuses on acquiring clients with a scope for scalability in future.

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For that matter, the company has been all ears on Honda Motorcycle & Scooter India (HMSI)
in two-wheeler segment, Maruti Suzuki India among passenger car makers, Ashok Leyland in
commercial vehicles and Mahindra & Mahindra in the farm equipment segment.
This clientele is one of the fastest growing in their segment, thus helping in maintaining volume
growth. In the past 18 months, the company has been able to increase its share of business
from Maruti Suzuki to 40% from the previous 33%.
The company's varied portfolio makes it less susceptible to the demand slack in any of these
segments. It has is looking for a revenue growth of 10-12% for FY17, which may be surpassed
if CV growth accelerates further. To maintain the volume growth, Sterling is putting up a new
facility in Gujarat to provide to new plants of HMSI and Maruti with an investment of Rs 40-50
crore.
Currently, Sterling tools share price 743.30 with a rise of around 6%. The stock’s previous
close has been in the middle of its closest resistance and support levels. For details on the
Resistance and support levels of Sterling Tools, visit the Sterling Tools share price
forecast page of Dynamic Levels.

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