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Tuesday, 14 September 2021
CM RATING43/100
 

Sansera Engineering

Supplier of two-wheeler components

Producer of connecting rods developing new products for EVs

Sansera Engineering is an engineering-led integrated manufacturer of complex and critical precision engineered components across automotive and non-automotive sectors. Within the automotive sector, company manufacture and supply a wide range of precision forged and machined components and assemblies, such as connecting rod, rocker arm, crankshaft, gear shifter fork, stem comp, and aluminium forged parts, 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, company manufacture and supply a wide range of precision components for the aerospace, off-road, agriculture and other segments, including engineering and capital goods.

As of April 30, 2021, company had 16 manufacturing facilities, of which 15 are in India in the states of Karnataka (Bengaluru, Bidadi, Tumkur), Haryana (Manesar), Maharashtra (Chakan), Uttarakhand (Pantnagar) and Gujarat (Mehsana), and one facility is in Trollhättan, Sweden.

Company's plan to construct a Greenfield manufacturing facility in Bangalore dedicated to aerospace and defense and, this facility is expected to be commissioned during Fiscal 2023.The estimated cost to build the new plant is Rs 20 crore. Once this new facility is built, company will move the machinery currently in Plant 9 to the new plant and close Plant 9.

Company supplies most of its products directly to OEMs in finished (forged and machined) condition. For Fiscal 2021, company derived 88.45%, and 11.55% of total revenue from sale of products from the automotive sector and non-automotive sectors, respectively.

For Fiscal 2021, company derived 64.98% of its total revenue from sale of products from India and 35.02% of its revenue from sale of products from Europe, USA and other foreign countries combined.

Company is one of the top 10 global suppliers of connecting rods within the light vehicle segment (passenger vehicles with gross vehicle weight of 3.5 tonnes or less) and one of top 10 global suppliers of connecting rods within the commercial vehicle (CV) segment for CY 2020.

Company has been witnessing healthy market share gains in connecting rods in terms of production volume for (1) Light Vehicles with a global market share of 2.3% in CY 2020 compared to a global market share of 0.9% in CY 2015 and (2) CVs with a global market share of 3.0% in CY 2020 compared to a global market share of 0.9% in CY 2015.

For Fiscals 2021, 2020 and 2019, company’s revenue from sale of products to the two-wheelers segment was 50.39%, 50.30% and 47.60% of total revenue respectively, its Revenue from sales of products to the passenger vehicles segment was 24.12%, 23.29% and 24.04% of total revenue respectively and its revenue from sale of products to the commercial vehicle segment was 13.14%, 12.99% and 14.77% of total respectively.

Company has an active pipeline of products under development, including (1) suspension and drive train components for electric two-wheelers, (2) braking system components for passenger vehicles, (3) machined engine casings for aerospace and (4) components for power transmission within non-automotive applications.

Company intends to develop multiple technology driven systems and components to cater to growing opportunities in electrification of vehicles. Company is in the process of setting up a dedicated facility for hybrid and electric components in Plant 2, which is expected to be commissioned during Fiscal 2022.

Offer and its objects

The IPO will be complete offer for sale of Rs 1282.98 crore by existing shareholders-Client Ebene Limited, CVCIGP II Employee Ebene Limited, S Sekhar Vasan, Unni Rajagopal K, F R Singhvi and D Devaraj.

Price band for the IPO is Rs 734 to Rs 744 per equity share of face value Rs2 each.

Company will not directly receive any proceeds from the Offer, and all the Offer Proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by them.

Promoters of the CompanyareS Sekhar Vasan, F R Singhvi, Unni Rajagopal K and D Devaraj. Promoters and promoter group hold an aggregate of 22,558,375 equity Shares, aggregating to 41.98% of the pre-Offer issued and paid-up Equity Share capital.The post IPO shareholding for the same is expected to be around 34.96%.

The issue, through the book-building process, will open on 14 September 2021 and will close on 16 September 2021.

Strengths

Company is a leading supplier of complex and high-quality precision engineered components that is gaining market share across automotive and non-automotive sectors.

Company has a track record of delivering strong financial performance, its total operating income (revenue from operations) has grown at a CAGR of 12.8% from Fiscals 2016 to 2020 as compared to the average CAGR of 7.4% for the top 10 listed auto-component manufacturers in India by market capitalization, in the same period.

Company's business model is well diversified by geographical spread of revenues and product portfolio. Company derives its revenue from multiple segments within the automotive sector, including the two-wheeler, passenger vehicle and commercial vehicle verticals.

Company has long-standing relationships with well-known Indian and global OEM customers. Within India, its customers include nine of the top 10 two-wheeler OEMs and the leading passenger vehicle OEM based on production volume for Fiscal 2021. Globally, its customers include six out of top 10 global Light Vehicle OEMs and three of the top 10 global MHCV OEMs based on production volumes for CY 2020.

Company is well placed to strengthen its global market share in existing automotive product portfolio and diversify into new products to cater to the expected increase in electrification of vehicles.

Within India, company is the largest supplier of (i) connecting rods, crankshafts, rocker arms and gear shifter forks for two-wheelers OEMs and (ii) connecting rods and rocker arms for passenger vehicle OEMs.

Company's automation division, which works concurrently with machine design and machine building divisions, has implemented multiple automation projects intended to increase productivity and control labour costs.

Company can manufacture and supply complex, high-quality precision components according to customers' specifications, which makes the company its customers' preferred supplier. Further, company is the single source supplier for certain components to select OEM companies in India and globally.

Company possesses strong design and engineering capabilities from product conceptualization to execution.These capabilities enable it to roll out new products in a timely manner and develop higher strength components required for high-end performance.

Weaknesses

Company depends on its major OEM customers for a significant portion of revenues. Its top five customers accounted for 59.21%, 59.46% and 60.01% of total revenue for Fiscals 2021, 2020 and 2019, respectively. The loss of any key customers may materially affect business and results of operations.

Company's business is very capital intensive, requiring it to maintain a large, fixed cost base. Profitability of the company is dependent, in part, on the ability to spread fixed costs over higher sales volume. However, it may not be able to spread such fixed costs effectively as customers generally negotiate for larger discounts in price as the volume of orders increases.

Company's future growth depends on its ability to continue to develop and commercialize innovative, viable and sustainable new automotive systems. However development of technologically advanced products involves a lengthy and expensive process with uncertain timelines and outcomes.

Changes in consumers' preferences, regulatory or industry requirements, or competitive technologies may render certain of its products obsolete or less attractive. For instance, company's key products, such as connecting rods (40% of FY21 sales)and crankshafts (17% of FY21 sales) from which it derives a substantial (57%)portion of total revenue are not used in battery electric vehicles.

Company may be subject to liability claims by third parties if the use of any of its products results in personal injury or property damage. Although company has product liability insurance, it may not be covered for all situations that may arise if there are any defects in products. In Fiscals 2021, 2020 and 2019, warranty cost was nil, Rs 2.11 crore and Rs 0.25 crore, respectively.

Company is dependent on third party suppliers for the supply of raw materials and assembled components. Company does not have long-term supply contracts for the supply of raw materials, a loss of suppliers or interruptions in the delivery of raw materials or volatility in the prices of raw materials may have a material adverse effect on its business.

A substantial portion of company's assets are hypothecated or mortgaged in favour of lenders as security for some of its fund-based and non-fund-based borrowings, lenders may enforce the security in the event of failure to service debt obligations. As of April 30, 2021, company had total secured fund and non-fund-based borrowings of Rs 623.13 crore.

Valuation

For FY 2021, consolidated sales were up by 6.32% to Rs 1549.27 crore compared to FY 2020. OPM increased by 214 bps to 17.56% which led to 21.11% increase in operating profit to Rs 272.12 crore. Other income increased 44.61% to Rs 23.09 crore, while interest cost fell 18.41% to Rs 47.39 crore and depreciation increased 8.28% to Rs 101.68 crore. PBT increased 64.81% to Rs 146.15 crore.Tax expenses for FY2021 was of Rs 36.29 crore compared to tax expense of Rs 8.77 crore in FY2020. Minority interest for FY2021 was Rs 1.87 crore compared to negative 0.41 crore in FY2020, Net profit rose 34.46% to Rs 107.986 crore.

The EPS(excluding extraordinary items and relevant tax) on post-issue equity works out to Rs 21 for FY2021. On the upper price band of Rs 744, P/E works out to 35.42 for FY2021.

In terms of P/E ratio, among the other listed peers, Endurance Technologies trades at P/E of 42.28, Minda Industries at P/E of 98.05, Craftsman Automationat P/E of 42.91,LG Balakrishnan & Brothers at P/E of 10.60, Mahindra CIE Automotive at P/E of 83.67. FY2021 annualized EPS is used in the calculations, with the share price being used as of 9 September 2021. 

 

Sansera Engineering: Issue highlights

For Offer for Sale Offer size (in Rs Crore)

 

- On lower price band

1265.73

- On upper price band

1282.98

Offer size (in no. of shares)

17,244,328

Price band (Rs)

734-744

Minimum Bid Lot (in no. of shares )

20

Post issue capital (Rs crore)

 

- On lower price band

10.2755

- On upper price band

10.2755

Post-issue promoter & Group shareholding (%)

34.96

Issue open date

14/9/2021

Issue closed date

16/9/2021

Listing

BSE, NSE

Rating

43/100

 

Sansera Engineering: Consolidated Financials

 

1903 (12)

2003 (12)

2103 (12)

Sales

             1,624.43

             1,457.17

             1,549.27

OPM (%)

17.80%

15.42%

17.56%

OP

                289.10

                224.70

                272.12

Other inc.

                  16.38

                  15.97

                  23.09

PBIDT

                305.48

                240.67

                295.21

Interest

                  51.28

                  58.09

                  47.39

PBDT

                254.20

                182.58

                247.82

Dep.

                  75.75

                  93.90

                101.68

PBT

                178.44

                  88.68

                146.15

Share of Profit/(Loss) from Associates/JV

                       -  

                       -  

                       -  

PBT  before EO

                178.44

                  88.68

                146.15

Exceptional items

                  13.49

                       -  

                       -  

PBT after EO

                164.95

                  88.68

                146.15

Taxation

                  66.89

                    8.77

                  36.29

PAT

                  98.06

                  79.91

                109.86

Minority Interest

                    1.85

                   (0.41)

                    1.87

Net Profit

                  96.21

                  80.31

              107.99

EPS (Rs)*

20.3

15.6

21.0

* EPS is annualized on post issue equity capital of Rs 10.2755 crore of face value of Rs 2 each

# EPS is not annualised due to seasonality of business

 

EO: Extraordinary items. EPS is calculated after excluding EO and relevant tax

 

Figures in Rs crore

 

Source: Capitaline Corporate Database