On-track to achieve strong growth
Key Points
1QFY25 performance update: Sansera Engineering (SANSERA) posted its highest ever consolidated revenue in 1QFY25 at ~Rs7.44bn, up ~13%/flat YoY/QoQ. Consolidated gross margin stood at 41.8% up by ~190bps YoY. EBITDA stood at ~Rs1.28bn and margin came in at 17.1%. GM expansion was offset by higher other expenses due to an increase in global freight rates and higher staff costs due to annual hikes incorporated in the quarter.
New Age businesses posting strong growth: As highlighted in our IC note the new age businesses including Tech Agnostic, X-EV and Non-Auto posted a combined growth of 34% YoY. Tech Agnostic grew 68%, X-EV 29% and Non-Auto 16.5% slightly constrained by the weak growth in the Agri segment. The Aerospace segment grew by 28% YoY. Going ahead, the company remains optimistic about ~40-50% growth in Aerospace over the next 2-3 years.
Auto ICE business outlook remains strong despite relatively weak 1QFY25: Auto ICE grew by ~7.2% in 1QFY25 slightly impacted by 20%+ decline in its Swedish operation. However, the addition of new components, new customers, increasing wallet share with existing ones and strong growth in 2Ws (42% revenue share) should drive growth going ahead.
Orderbook looks promising: Orderbook at the end of June’24 stood at Rs 16.9bn of which 63% came from the international business and 37% from domestic. Increasing share of exports and non-ICE business will further support margin improvement.
Investing in growth: The company has revised the capex estimate to Rs 4.5bn from 4bn or FY25. Of which 40-45% is expected to go towards tech-agnostic and nonautomotive segments. The company is looking to add a special process facility to the aerospace machining facility. It is also looking to acquire 55acres of land for a greenfield capacity. Current capacity utilization stands at 65-70% while the peak achievable capacity utilization is ~80%.
Focus shifting from EVs to ICE globally should benefit SEL in long run: The management said that there is some shift in focus towards ICE as against the recent narrative that it was shifting towards EVs and away from ICE. As the majority of the revenue for SEL still comes from ICE (~72%) and shifting focus towards ICE is going to benefit SEL.
Valuation and View: We remain positive on the stock led by robust overall growth outlook driven by Tech-agnostic & xEV and Aerospace segments where we expect the business to grow at ~40%-50% CAGR, driven by a robust order book of ~Rs10bn. Apart from the above key growth drivers, traditional business revenue is also expected to grow by ~8%- 15%, driven by the premiumization trend and market share gains. Improvement in product mix (led by a higher share of Tech-agnostic and Aerospace products) will lead to ~110bps improvement in margin from 17.1% in FY24. Overall, we expect EPS to grow at 33% CAGR over FY24-FY27E. To factor in SEL’s superior growth prospects and its robust operating capabilities, we value the business at PE of 20x Sept’26 EPS to arrive at the TP of Rs1,700. We marginally tweak our FY26/27 EPS estimates due to better margin prospects.
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