Sandhar Technologies Research Report By Karvy

Profit Set to More Than double over FY18-20E

Post Q2FY19, we had an interaction with the Sandhar management. We continue to believe in the robust growth prospects for Sandhar in the medium term. We retain our earnings estimates for FY19 and FY20 and reiterate BUY rating on the stock with revised price target of Rs420 (PER of 16xFY20E). Following are the key takeaways.

2W Business (59% of sales):

Sandhar’s 2W business (Locks, Aluminum Casting and Mirrors) grew by 20%+ during H1FY19 compared to 2W industry growth of 11.9%. This is on account of its recent entry into scooter segment and contribution from new products. Going forward, the Management anticipates increase in its content per vehicle in its 2W business on account of new offerings (helmet lock) and contribution from new aluminum die casting plant. The Company plans to achieve 15%+ sales CAGR in its 2W business over the next two years.

Cabin and Fabrication (13% of sales):

Sandhar’s OHV business (Cabin and Fabrication for construction equipment) grew by 75.4% during H1FY19 compared to construction equipment industry growth of 20%. Higher growth is primarily driven by its key client JCB (new plant at Jaipur). Management anticipates this business segment to cross Rs3.5bn in FY20 compared to Rs1.9bn in FY18 on account of buoyancy in construction equipment market in India.

PV Segment (12% of sales):

Sandhar’s Honda Cars business (Locks, aluminum casting and Mirrors etc) grew by 1.1% during H1FY19 compared to Honda Cars growth of 3.9%. The management anticipates this division to regain higher traction by FY21 supported by Honda’s new launches wherein Sandhar has committed orders in hand.

Maintain BUY:

Sandhar is among the top five diversified auto ancillary listed entities in India. We believe Sandhar has now entered into a high growth phase wherein its sales and PAT are expected to grow at 19.4% and 55.1% over FY18-20E respectively. Further we believe, new JVs will enable sustenance of growth beyond FY20E. At Rs310, the stock is quoting PER of 11.8xFY20E earnings. We maintain our BUY rating with revised price target of Rs420 (PER of 16xFY20E). To realign sectoral valuation, we have reduced target PER from 18x to 16x.