About the company:
Sansera Engineering Limited is all set to hit Dalal Street on 14th September 2021. The company is coming out with its IPO which is an offer for sale of 1.72 crore equity shares aggregating to Rs. 1,282.98 crore. Post the issue, the implied market capitalization of the company is expected to stand between Rs. 3,771 crore and 3,823 crore based on the lower and upper price bands, respectively.
Issue Details:
September 14, 2021 to September 16, 2021
Price Band: Rs. 734 to Rs. 744 per share
Minimum Lot: 20 shares
Minimum Application Amount: Rs. 14,880
Objects of the Issue:
Business overview:
Sansera Engineering Limited was incorporated in 1981. The company is an engineering-led integrated manufacturer of complex and critical precision engineered components across automotive and non-automotive sectors.
Within the automotive sector, the company manufacture and supply a wide range of precision forged and machined components and assemblies that are critical for engine, transmission, suspension, braking, chassis, and other systems for the two-wheeler, passenger vehicle, and commercial vehicle verticals. Within the non-automotive sector, the company manufactures and supplies a wide range of precision components for the aerospace, off-road, agriculture, and other segments, including engineering and capital goods. Company mostly supplies forged & machined products to OEM’s directly. As of April 30, 2021, it had 16 manufacturing facilities, of which 15 are in India in the states of Karnataka and one facility is in Trollhattan, Sweden.
In FY21, the automotive sector contributed 88.45 per and non-automotive 11.45 per of the revenue. Within the automotive sector, two-wheelers contributed 50.39 per of the total revenue. Geographically, company derives 64.98 per of its revenue from India and 35.02 per of its revenue from Europe, USA, and other foreign countries combined. Bajaj Auto remains the top customer contributing 20.75 per of its revenues in FY21.
It is one of the top 10 global suppliers of connecting rods within the light vehicle segment and one of the top 10 global suppliers of connecting rods within the commercial vehicle segment for CY 2020, according to the Ricardo report. Within India, the company is one of the leading manufacturers of (i) connecting rods, crankshafts, rocker arms, and gear shifter forks for two-wheelers and (ii) connecting rods and rocker arms for passenger vehicles. Specifically, it is the largest supplier of connecting rods and rocker arms to passenger vehicle OEMs in India, as per CRISIL Report.
Financials:
| Particulars (Rs Crs.) | FY21 | FY20 | FY19 |
| Revenue from operations | 1549.27 | 1457.17 | 1624.43 |
| EBITDA | 295.21 | 240.66 | 291.98 |
| EBITDA Margin (%) | 18.78% | 16.34% | 17.80% |
| PAT | 109.86 | 79.9 | 98.06 |
| PAT Margin (%) | 6.99% | 5.42% | 5.98% |
| Debt | 549.74 | 636.77 | 595.36 |
| EPS - Diluted (Rs.) | 20.55 | 15.28 | 18.31 |
| Net worth | 877.42 | 767.36 | 684.56 |
Revenue from operations has grown at a CAGR of 12.8 per from Fiscals 2016 to 2020. Being in a cyclical industry, company has managed to deliver EBITDA margin in the range of 16-18 per. Company has delivered consistent PAT margins and ROE during the 2018-2020 period.
Risks:
Company derives a substantial portion of its revenue from key product families, especially connecting rods, rocker arms, crankshafts, and gear shifter forks (i.e. 83 per of revenue comes from the components used in the internal combustion engine)
It would have to be seen how the company will adapt to the future market trends in the battery electric vehicles in India and internationally, especially in the electric two-wheeler segments
Company may not be successful to cater growing opportunities in the electrification of vehicles and extending its existing capabilities to engineer additional precision components for non-automotive applications
High customer concentration (59 per of revenues comes from Top 5 customers and from Top 2 it's 35 per). Company’s business largely depends upon certain key customers, especially Bajaj, in the automotive sector, and any loss of such customers, may have a significantly adverse impact on the business
Valuation:
Precision components manufacturing industry is extremely competitive and company’s process of adapting to the change of electric vehicles is yet to be seen. Further, with more EV adaptability, engines will be replaced by different internal components. At the upper price band of Rs. 744, the issue appears little expensively valued at price to sales 2.4x as compared to its listed auto ancillaries peers. Accordingly, risk-taking investors may look to subscribe from a listing gains perspective only if the sentiment improves towards the last day of subscription.
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