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Sansera Engineering Ltd>
  • CMP : 825.4 Chg : 9.50 (1.16%)
  • Target : 900.0 (34.33%)
  • Target Period : 12-18 Month

21 Jun 2022

Robust order wins to ensure industry leading growth…

About The Stock

Sansera Engineering (SEL), established in 1981, is a Bengaluru based engineering led integrated manufacturer of critical precision forged components (engine, non-engine oriented) for end application in predominantly auto domain.

  • FY22 Geography mix: India 63%; Europe: 24%; US: 9%; others: 4%
  • FY22 End-User mix: Auto ~83%; Non-Auto ~11%; Auto-Tech & xEVs ~6%
What should Investors do?

SEL’s price has corrected ~18% since listing from ~₹ 818 levels in September 2021, underperforming the wider Nifty Auto index.

  • We initiate coverage on SEL with a BUY rating on the stock amid robust order book wins & strong penchant to grow ahead of industry
Target Price Valuation

We value SEL at ₹ 900 i.e. 20x P/E on FY24E EPS of ₹ 45, building in 18%, 34% sales, earnings CAGR, respectively, over FY22-24E.

Key Triggers for future price performance
  • History of consistent outperformance to industry. We expect the trend to continue amid robust order wins from domestic & marquee OEMs in global space with consequent sales growth built in as 17.8% over FY22-24.
  • Strong focus on de-risking the existing product profile (engine heavy) with five year sales target at 25% from non-auto and 15% from AUTO-TECH AGNOSTIC & xEVs, primarily riding on indigenously developed capabilities. It has developed drivetrain, suspension, steering and braking components in this direction for the vehicle categories namely 2-W, PV and CV space
  • With raw material a complete pass through, albeit with a time lag, we see margins stabilising at ~18% mark building in operating leverage benefits. Consequent return ratios are expected to improve to ~17% levels by FY24E. Ensuring PAT growth is seen at 33.7% CAGR over FY22-24E.
  • Healthy b/s, with total debt at ₹ 645 crore (FY22) with debt: equity at ~0.6x & consistent positive cash flow from operations (>₹ 200 crore per annum). Forward capex spends of ₹250 crore/year to be met through internal accruals
  • Long standing customer relationship with OEM’s like Maruti Suzuki, Honda Cars, Toyota among others in the PV space and Bajaj Auto, HMSI, Royal Enfield among others in the 2W space. Top 5 customers contribute ~54% to its sales with Bajaj Auto as its anchor client contributing ~17% to its sales.
New Stock Ideas

In our auto universe, we also like Mahindra & Mahindra.

  • Focused on prudent capital allocation, UV differentiation & EV proactiveness
  • BUY with target price of ₹ 1,200

Key Financial Summary

Key Financials FY19 FY20 FY21 FY22P 3 year CAGR (FY19-22) FY23E FY24E 2 year CAGR (FY22-24E)
Net Sales 1,624.4 1,457.2 1,549.3 1,989.0 6.9 2,349.4 2,759.6 17.8
EBITDA 289.1 224.7 272.1 333.6 4.8 398.2 509.1 23.5
EBITDA Margins (%) 17.8 15.4 17.6 16.8 - 17.0 18.5 -
Net Profit 96.2 80.3 108.0 130.4 10.6 160.1 233.3 33.7
EPS (|) 18.4 15.4 20.7 25.0 - 30.7 44.7 -
P/E 36.3 43.5 32.4 26.8 - 21.8 15.0 -
RoNW (%) 15.2 10.5 12.3 12.7 - 13.7 16.9 -
RoCE (%) 14.3 8.2 10.5 11.3 - 12.8 15.8 -
- - - - - - - - -
- - - - - - - - -
- - - - - - - - -
Source: Company, ICICI Direct Research

Company Background

Sansera Engineering (SEL), established in 1981, is a Bengaluru based engineering led integrated manufacturer of critical precision forged components for end application in automotive (2-W, PV, CV) & non-automotive (aerospace, off-road, agriculture, etc.) sectors. Its automotive product range includes connecting rod, rocker arm, crankshaft, gear shifter fork and stem comp among others. SEL has 17 manufacturing facilities (16 - India, one -Sweden). It commenced commercial production of passenger vehicle components in 1986, for two-wheeler vertical in 1996, for off road vehicles in 2009 and commercial vehicle vertical in 2011. It has installed capacity of ~11.05 crore units (components) with utilisation as of FY21 at ~56%.

Product Offerings

Connecting Rod: - The rod connects the piston to a crankshaft, with the smaller end connected to the piston and the bigger one to the crankshaft. SEL is the largest supplier in 2-W connecting rod. One connecting rod is required per cylinder. It is primarily made from steel. The size of the connecting rod market (catering to OEM demand) is estimates to be ~| 1,060 crore as of FY21.

Crankshaft: - The crankshaft connects the pistons and flywheel for transfer of energy & motion of vehicles. It is made from forged steel (.31% carbon, 2.5% nickel, .65% chromium, rest iron ~96.5%). The size of the 2-W & PV crankshaft market in India catering to OEMs is estimated at ~| 1,720 crore (FY21)

Rocker arm: - This component is used in the fuel injection mechanism and is in regular contact with valves. Two per cylinder is required in case of single cylinder 2-W. One for inlet and one for outlet. A PV with four-cylinder engines having two inlet and outlet valves each for one cylinder uses 16 rocker arms. It is primarily made of alloy steels due to high strength required and frequent movement. Rocker arm market size is estimated at ~| 540 crore as of FY21.

Other Products

Gear shift forks: - Used to change gear position and typically used in manual transmission gears. Quantity required for PV ~five forks, for 2-W - two forks

2-W stem components: - it connects handle bar with suspension forks

2-W axel – Joints wheels with handle. Pair is required in 2-W

The company also started manufacturing of EV powertrain components for 2-W & PV

 

Terms & conditions and other disclosures

ANALYST CERTIFICATION

I/We, Shashank Kanodia, CFA, MBA (Capital Markets), and Raghvendra Goyal, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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