Sansera Engineering - IPO - Strong Outlook with Steady Cash Flow - Reliance Securities

About the Company

Sansera Engineering Ltd. (SEL), incorporated Dec'81, is an engineering-led integrated manufacturer of complex and critical precision engineered components across automotive and non-automotive sectors. In automotive sector, it manufactures a wide range of precision-forged and machined components and assemblies, which are critical for engine, transmission, suspension, braking, chassis and other systems for 2-wheelers, passenger vehicles (PVs) and commercial vehicles (CVs). In non-automotive sector, it manufactures a wide range of precision components for aerospace, off-road, agriculture and other segments, including engineering and capital goods. SEL is one of the Top-10 global suppliers of connecting rods within the light vehicle (LV) segment and one of the Top-10 global suppliers of connecting rods within CV segment in CY20. As of July 31, 2021, it has 16 manufacturing facilities (15 in India and 1 facility in Sweden). Within India, its customers include 9 out of Top-10 2-wheeler OEMs and a leading PV OEM (based on the production volume of FY21). Globally, its customers include 6 out of Top-10 global LV OEMs and 3 of Top-10 global M&HCV OEMs (based on the production volume of CY20). Owing to the critical applications of its products and stringent quality requirements, it is difficult for the new players to become qualified or replace precision components supplied by SEL.

Financials in Brief

SEL's financial performance has not been impressive over last two years, owing to slowdown in automobile industry. While revenue clocked a negative CAGR of 2% over FY19-FY21, net profit recorded 6% CAGR during the same period. Profit growth was majorly supported by reduction in debt and steady margin. Further, cash flow generation has been impressive for the company with cumulative OCF and FCF generation standing at Rs7.2bn and Rs1.7bn, respectively over FY19-FY21. Notably, it derived 88.5% and 11.5% of its revenue from automotive and non-automotive sectors, respectively in FY21.

Our View: SUBSCRIBE

The IPO is valued at 35x of FY21 earnings, which appears to be at a discount of 17% to its peers like Endurance Technologies. Notably, working capital cycle, which stood at 79 days in FY21 and steady cash flow over the years offer comfort. Further, asset turnover ratio at 1.15x in FY21 indicates that SEL can sustain higher growth with likely improvement in automobile volume in the subsequent years. Additionally, OCF yield at 6.7% appears to be the best among peers, which offers an edge, while consistent cash generation is likely to result in strong dividend payout in the ensuing years. Hence, we recommend SUBSCRIBE to the issue from long-term perspective.

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Source : Equity Bulls

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