Sansera Engineering

Sansera Engineering Limited Q2 FY25 Earnings Conference Call Briefing Doc

Date: 12th November 2024

Attendees:
• Mr. B.R. Preetham – Executive Director and Group Chief Executive Officer
• Mr. Vikas Goel – Chief Financial Officer
• Mr. Praveen Chauhan – Head Corporate Strategy
• Mr. Rahul Kale – Chief Operating Officer

Overall Performance: Sansera reported strong Q2 FY25 financial and operational performance despite challenging market conditions. Revenue increased by 10% year-on-year to INR7,634 million, driven by growth in Auto ICE and tech-agnostic/xEV segments. EBITDA margin improved to 17.4%. The recent QIP of INR12,000 million has significantly strengthened the balance sheet.

Key Themes & Highlights:

1. Sectoral Performance:
   • Auto ICE: Continued healthy growth, driven by the 2-wheeler business (21% year-on-year growth). PV business declined by 8% year-on-year due to export market softness.
   • Tech-agnostic & xEV: Fastest growing segment (53% year-on-year growth) driven by ramp-up of orders from a large North American EV customer.
   • Non-auto: 20% year-on-year decline due to weakness in off-road and agriculture businesses. Expect improvement in coming quarters with a stronger monsoon and new order execution for stationary engine and HCV customers.
   • Aerospace: Under pressure due to customer headwinds, but demand remains robust. Expect gradual production recovery and growth trajectory resumption.

2. Order Book & Growth Strategies:
   • Order book stands at over INR20 billion, with 60% from international markets. Strong order intake of INR3.2 billion during the quarter, driven by both auto and non-auto sectors.
   • Expanding capabilities with a new manufacturing facility in Harohalli, Karnataka, to accommodate new forging and machining lines.
   • Expanding Pantnagar plant for low-cost manufacturing.
   • 60% of future capex allocated towards new-age components in tech-agnostic, xEV, and non-auto segments.
   • Expanding professional team with key hires in leadership roles.
   • Strategic MOU with Dynamatic Technologies for producing high-friction parts for Airbus A220 aircraft door assemblies.

3. Financial Highlights:
   • Gross margin expansion of 1.3 percentage points to 41.3% due to improved product mix and efficiency projects.
   • EBITDA margin of 17.4%.
   • Interest cost higher sequentially due to higher debt and discontinuation of interest subvention on export credit. Expect reduction with QIP proceeds being used for debt repayment.
   • Capex investments of INR2,937 million during the first half.
   • Net cash positive post QIP.

4. Future Outlook:
   • Maintain positive outlook on 2-wheeler and tech-agnostic/xEV segments.
   • Expect recovery in PV and non-auto segments in coming quarters.
   • Continue focus on margin expansion through product diversification, cost control, efficiency improvements, and volume growth.
   • Target 40%-50% CAGR growth in aerospace and defense over the next 2-3 years.
   • Exploring strategic acquisitions and geographic expansion opportunities.

Key Quotes:
• On growth drivers: “Broadly speaking, beyond land and building, we intend to spend more than 60% of our future capex towards new-age components in tech-agnostic, xEV, and non-auto side.” (Mr. B.R. Preetham)
• On margin levers: “So these are two levers that we have. The third lever is the volume expansion on an overall basis and a higher capacity utilization, which will probably also materialize over a period of time.” (Mr. Vikas Goel)
• On aerospace outlook: “We continue to hold a positive outlook on aerospace and defense. And definitely, again, as I reiterate, that the company intends to grow by 40% to 50% CAGR in this sector for the next 2 to 3 years with a strong outlook on the order book.” (Mr. B.R. Preetham)

Key Questions & Answers:
• Significant order book increase in non-auto segment is driven by aerospace, semiconductor equipment, and agri sectors.
• QIP proceeds will be used for debt repayment, strategic acquisitions, geographic expansion (including a US assembly plant), capability building in forging and aluminium, and investment in deep technology startups.
• Expect margins to expand in the medium term as new business initiatives mature and cost optimization measures take effect.
• Peak revenue potential for the aerospace and defense segment is now INR325 crores to INR350 crores, including semicon.
• New orders in the semiconductor equipment segment are recurring in nature.
• Expect revenue share from the aerospace and defense segment to increase to 5.5%-6% in the next 2-3 years.

Overall, Sansera’s management expressed confidence in the company’s future growth prospects, driven by a strong order book, new business initiatives, and a strengthened balance sheet.