CF ASSIGNMENT

Sterlite tools
Company code -
STERLITECU

Submitted by Divyam Bhadoria

(19PGP052) Submitted to Yogesh Chauhan
Introduction
• Sterling Tools Limited, (BSE: 530759, NSE: STERTOOLS) is
engaged in the manufacturing of high-tensile (HT) cold forged
fasteners mainly for automobiles. The Company is one of top
three fasteners manufacturers in India and caters to leading
automotive companies in India, Europe and USA. STL has three
plants, which are located in Faridabad and has over 900
employees. Our product portfolio includes special fasteners,
standard fasteners, surface treatment and coatings, chassis
fasteners and engine fasteners.
Flawless balance sheet with proven track
record and pays a dividend
• Over the past few years, STERTOOLS has demonstrated a proven
ability to generate robust returns of 20% Not surprisingly,
STERTOOLS outperformed its industry which returned 12%
• giving us more conviction of the company’s capacity to drive
bottom-line growth going forward
• STERTOOLS’s strong financial health means that all of its
upcoming liability payments are able to be met by its current
cash and short-term investment holdings. This implies that
STERTOOLS manages its cash and cost levels well, which is an
important determinant of the company’s health
Debt to Equity

• STERTOOLS appears to have made good use

of debt, producing operating cash levels of
1.46x total debt in the prior year. This is a
strong indication that debt is reasonably
met with cash generated.
• In general, many investors look for a
company to have a debt ratio between 0.3
and 0.6.
Debt to equity analysis
• debt to equity ratio (29.8%) is
considered satisfactory.
• debt to equity ratio has reduced
from 61.3% to 29.8% over the
past 5 years.
• debt is well covered by operating
cash flow (88.6%).
• interest payments on its debt
are well covered by EBIT (13.8x
coverage).
Dividend Payout

• Income investors would also be happy to know that

STERTOOLS is a great dividend company, with a current
yield standing at 1.2%. STERTOOLS has also been
regularly increasing its dividend payments to
shareholders over the past decade.
• For the year ending March 2019 Sterling Tools has
declared an equity dividend of 100.00% amounting to Rs
2 per share. At the current share price of Rs 211.15 this
results in a dividend yield of 0.95%. The company has a
good dividend track report and has consistently
declared dividends for the last 5 years
A Look At Sterling Tools’s Liabilities
• According to the last reported balance sheet, Sterling • Neither Sterling Tools’s ability to convert EBIT to free cash
Tools had liabilities of ₹881.3m due within 12 months, flow nor its EBIT growth rate gave us confidence in its
and liabilities of ₹893.8m due beyond 12 months. ability to take on more debt. But the good news is it
Offsetting this, it had ₹575.1m in cash and ₹452.9m in seems to be able to cover its interest expense with its
receivables that were due within 12 months. So its EBIT with ease. Looking at all the angles mentioned
liabilities total ₹747.1m more than the combination of its above, it does seem to us that Sterling Tools is a
cash and short-term receivables. somewhat risky investment as a result of its debt
• Of course, Sterling Tools has a market capitalization of
₹7.06b, so these liabilities are probably manageable. But
there are sufficient liabilities that we would certainly
recommend shareholders continue to monitor the
balance sheet, going forward.
• Sterling Tools’s net debt is only 0.56 times its EBITDA. And
its EBIT covers its interest expense a whopping 13.7 times
over. So we’re pretty relaxed about its super-conservative
use of debt. On the other hand, Sterling Tools’s EBIT dived
17%, over the last year. We think hat kind of
performance, if repeated frequently, could well lead to
difficulties for the stock. There’s no doubt that we learn
most about debt from the balance sheet. But you can’t
view debt in total isolation; since Sterling Tools will need
earnings to service that debt. So when considering debt,
it’s definitely worth looking at the earnings trend
Market
Performance
 • Sterling Tools has not provided enough past data and has no analyst
Future Growth forecast, its future earnings cannot be reliably calculated by extrapolating
past data or using analyst predictions.