Sundram Fasteners Ltd. - Steady Domestic Momentum Offsets Export Weakness; upgrade to Accumulate - Company Update
We increase target price to Rs 1085 (previously Rs1030) and upgrade our rating to Accumulate for Sundram Fasteners Ltd. (SFL) due to steep correction in share price. Increase in TP is mainly due to valuation roll forward. SFL’s performance in 2QFY26 remained mixed, as strong domestic performance outpacing underlying industry was offset by continued weakness in exports. While there are several factors driving growth over longer term like ramp up of wind energy and high margin EV orders along with addition of new products, the prevailing weak demand in export markets, pushback of EV order, ongoing tariff concerns, and delayed recovery in global CV/PV demand are leading to tepid growth in FY26.
Moderate show on consolidate revenues:
SFL reported consolidated revenues of Rs15.2bn (+2% yoy; -1% qoq) in 2QFY26, slightly below our estimate of Rs15.5bn, primarily due to muted exports. The domestic revenue growth of 11% was better than the underlying industry growth, driven by increase in wallet share at existing customers & increase in market share for fasteners. However, export revenues declined by 12% yoy due to continuous weakness in demand (especially for trucks) and geopolitical issues.
Margins remain stable due to several tailwinds:
SFL reported 16.6% margins; +14bps yoy; +50bps qoq, supported by several factors like softening commodity prices and lower other expenses, though overseas subsidiaries continued to face cost pressures. With further support from high other income, SFL reported a 6% yoy growth in PAT at Rs1.5bn.
Uncertainty on demand and limited short-term triggers:
SFL has plans with respect to introducing new components and adding new customers which should help them deliver growth better than the underlying industry. The new capacities are already commissioned for wind energy and EV. However, near-term prospects remain subdued given lack of visibility in export demand (particularly in North America), ongoing tariff-related issues, and moderate domestic CV/PV demand outlook, leading to poor earnings forecast for FY26E and improvement in exports only in Q1FY27. We expect the domestic CV and PV industry to grow by a mere 3-5% in FY26, weakening the domestic market prospects for SFL. The dispatch of the US EV order is expected to scale up more gradual than expected previously.
Valuation & Rating:
With no earnings change, we expect a 10%/12%/16% CAGR in Rev/ EBITDA/PAT over FY25-28E. We value SFL at 30x Sep’27 PE ratio to arrive at a target price of Rs1085/share (previously Rs1030) and upgrade to Accumulate rating. Key risks: Longer than expected Auto down cycle, weakness in exports.
Company website: https://www.sundram.com/
| Rating | Accumulate |
|---|---|
| CMP | INR 960 |
| Target Price | INR 1,085 |
| Upside | 13% |
Click to download the full Sundram Fasteners Ltd. 2QFY26 Company Update
Analyst:
- Sahil Sanghvi - Research Analyst, Institutional Equities (NISM-201900004744)
- Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)
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