Studds Unlisted Share

Company Overview:

Studds Accessories Ltd (Studds), incorporated in 1973, is a leading manufacturer of helmets in India. The company owns two brands: Studds and SMK. SMK, a premium brand launched in 2016, is mainly targeted at the export market. Despite the sharp slowdown in the demand for two-wheelers (2Ws) in FY20 and FY21, the demand for helmets grew ~5% in FY20 and 8% in FY21. This was due to the strict implementation of regulations by state authorities across India, making it mandatory for 2W riders to wear helmets.

Going forward, we believe the laws related to helmets for 2W riders will continue to be stringent. This, coupled with the introduction of regulations making helmet wearing compulsory for pillion riders by an increasing number of states, would be the key growth driver for the helmet industry.

To increase road safety and curb the rising accidents, states have been implementing strict laws making helmets mandatory for 2W riders since 2010. Also, to contain counterfeiting in the domestic helmet industry, Central government imposed a ban on the sale of non-BIS helmets and duplicate helmets from 2018. We believe stricter enforcement of law and rising awareness, coupled with the trend of premiumisation, would drive growth in the domestic helmet industry. Studds, being the market leader, stands to be the major beneficiary of this change. 

The helmet industry in India has evolved over the past decade and continues to undergo rapid transformation. In addition to the tough stance of local authorities and police towards offenders, over the years, the government and private sector have also collaborated to bring awareness regarding safety in 2W riders. Consequently, the demand for helmets in India more than doubled from ~11mn units in FY12 to ~24mn units in FY21.

Despite the sharp slowdown in the demand for 2Ws in FY20 and FY21, the demand for helmets grew ~5% in FY20 and ~9% in FY21, mainly due to the regulatory push.

Mission Statement:

We aim to become the top helmet company in the world and provide safety to every two-wheeler rider. A rider who is not just travelling but also carrying with himself dreams, dreams which are associated with individual, family, society as well as nation.

We believe that dreams inspire a person and brings the best out of him. This quest to fulfil dreams of every individual motivates us to work tirelessly and deliver on quality and innovation.

We at STUDDS believe that dreams differentiate the better from the best and hence it’s our small effort in the journey of the individual to fulfil his dreams.

As we touch millions of lives every year, we continue to ride on this trust with our passion to produce safe, innovative, comfortable yet quality products.

Products Offered:

• Helmets

• Motorcycle Accessories

• Personal Protective Equipment

Industrial Overview:

Post pandemic the two-wheeler Industry has started to grow. The industry was witnessed as the best individual mobility, even in those locations with high quality public transportations. The industry had a turnaround in sales after months of poor performance owing to multiple factors including limited demand from rural areas. The motorcycle industry is expected to achieve high growth due to the global growing demand for individual mobility. Motorcycle and scooter dispatches increased year-on-year (y-o-y) basis. An early harvest coupled with a pent-up demand for weddings and festivals has significantly increase the sales. Last year’s low base also made the y-o-y sales performance look impressive. The two-wheeler segment has also grown with the increase in the purchasing power of urban and semi urban markets. Further, the low cost ownership of two- wheelers has been a major growth driver of this sector.

The helmets segment is expected to achieve significant growth because of the regulations that enforces the use of helmets for two wheeler riders as the number of road accidents has increased over the last decade. Governments are taking initiatives and implementing stringent regulations to bring down the number road accidents. Furthermore, apart from enhanced safety, these helmets are available in a variety of designs. The popularity of motorbike events and racing championships is rising on global level, which is further expected to contribute toward the growth of the global market. In addition, the expansion of online distribution channel is driving the helmet market growth, the convenience of selecting, purchasing, and receiving doorstep delivery, which attracts consumers to online channels, is expected to continue in the future and is likely to foster the market growth.

Competitive Strength:

• They have strategically expanded their product portfolio under our two brands, Studds and SMK, each positioned to target specific segments of the helmet and two-wheeler lifestyle accessory market, so as to compliment with one another. 

• The safety, reliability and quality associated with a helmet brand are the key attributes which increase customer confidence and influence a purchase decision.

• They understand changing fashion trends and anticipate customer requirements, while ensuring compliance with the highest quality standards. They have hired Spanish design firm for designing and developing SMK full face and flip- up helmets with inbuilt Bluetooth technology in order to enhance the riding comfort and safety of two-wheeler riders.

• Strong pan India dealer network across urban, semi urban and rural parts of India which consists of dealers and institutional customers, such as the Central Police Canteens and Canteen Stores Department as well as a global distribution network.

• They have developed their manufacturing processes over two decades of production experience and gradually created extensive backward integration, which has allowed them to have better control over the quality of their products. This ensures quality and safety control at each stage of the manufacturing process, supporting their ability to continuously develop new products and designs, reduced operational costs and economies of scale. 

• Most of the orders placed by the dealers are backed by advance payments and all the orders placed by the importers are usually backed by advance payments or letter of credit, which allows them to have negative working capital.

• In order to put a check on the increasing number of casualties involved in road accidents, the government had issued a mandate for the two-wheeler riders to compulsorily wear helmets a few years ago. This led to an exponential growth in the demand for helmets over the years as the two-wheeler market recorded sharp growth over the last decade.

• Easier finance options, newer and more fuel-efficient models, rising incomes and emerging business models, such as e-commerce, also help OEMs to sell more in the market. In metros and major cities, choked infrastructure and traffic jams, paucity of parking space have fuelled the sale of two wheelers over four wheelers. People buy two-wheelers for shorter commutes despite owning a four wheeler. Preference for two wheelers is increasing in congested cities and they are commonly becoming second vehicles in households.

Promoters and ShareHolding Pattern:

Peer Comparison:

Financials:

Source: Company Filing Form AOC-4

Source: Company Filing Form AOC-4

Source: Company Filing Form AOC-4

Valuations:

• Despite the adverse market climate, two factors sustain the gradual increase in overall income. First, higher average foreign exchange rate in FY22 than in previous years, which led to a 42.8 percent increase in total exports.

• The accumulated retained earnings over the years of the company have been driven by the consistent revenue generation of the company.

• The significant increase in EBITDA is due to the increased earnings of the company. The increased exports contributed majorly to increasing revenue in 2022.

• The gradual increase in the asset base of the company is primarily due to the increase in the current asset group of the company.

• Debt to Equity ratio is reduced showing their efficient debt payment.

• he significant decrease in ROE is primarily because of the decrease in the ability of the assets to generate income as well as the low profit margin in FY22.

• The decline in ROCE is mostly due to the company's expansionary goal, which involves developing new and improved gears using its assets, which has increased the company's current liabilities.