Robust order book and diversification to drive growth
About the stock: Sansera Engineering (SEL), est. in 1981, is a Bengaluru based, engineering led, integrated manufacturer of critical precision forged components (engine, non-engine) for end application, predominantly in auto domain.
• FY24 sales: Auto ICE~76%; non-auto~12%; Tech agnostic & EVs~12%
• FY24 geography mix: India ~69%; Europe ~18%; US ~10%; Others ~3%
Q2FY25 Result: Sansera Engineering reported steady performance in Q2FY25. On the consolidated basis, total operating income for the quarter stood at ₹ 763 crore (up 10% YoY) with EBITDA at ₹133 crore and corresponding EBITDA margins at 17.4% (up 30 bps QoQ). PAT in Q2FY25 came in at ₹50.7 crore (up ~8% YoY). Revenue from domestic segment grew by 8% YoY while international operation stagged a growth of 15% YoY in this quarter.
Investment Rationale
• Robust orderbook to drive healthy double-digit growth: Sansera Engineering is a prominent player in the auto component sector specializing in the production of precision forged parts such as connecting rods, rocker arm, crankshaft, etc. in Auto ICE domain; suspension parts, braking components and aluminium forged components in Auto Tech agnostic domain, drive train components in EV domain and structured parts in non-auto space (Aerospace, Defence, Off-Road segment, etc.). SEL boast robust orderbook of ~₹2,000 crores as of H1FY25, with 51% orders from emerging and margin accretive segments (Non-auto and Auto Tech Agnostic & xEV). Notably, ~60% of these orderbook are from international market. Thus, with proven capabilities & capacities in place, SEL is strategically positioned to evolve into a globally recognized precision engineering company. We have baked in 17% revenue CAGR over FY24-27E, potentially reaching to ~₹ 4,500 crore by FY27E.
• Diversification in progress, auto tech & non-auto domains to outgrow: As of H1FY25, SEL derives ~73% of its revenue from Auto-ICE segment while it realises balance ~16% of sales from Auto Tech Agnostic & EV segment and ~11% from non-auto segment. Sensing relatively higher ICE exposure, SEL is proactively implementing a strategy to diversify its revenue stream by reducing auto-ICE share of sales to 60% and augment share of tech agnostic-auto and non-auto share of sales to 20% each in years to come. The management aims to grow the non-auto segment (defence, aerospace & semiconductors) with a CAGR of 35%-40%. SEL is making tangible progress by wining new orders in this direction.
Rating and Target Price
• With robust order book backed high double-digit growth on the anvil, we have a positive view on Sansera amid structural positives being net debt free b/s & healthy double-digit margins and return ratios profile. We retain our BUY rating on SEL, valuing it at ₹ 2,000 i.e., 26x PE on FY27E.
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