Sansera Engineering - Fresh orders signify capability to diversify - ICICI Securities

We recently interacted with the management of Sansera Engineering (SEL) for investor meetings. Key takeaways from the meetings are: a) Recent order win of Rs300mn p.a. (10-year order) from BMW Motorrad, which would start getting executed FY24E onwards, with scope of fresh orders from the same customer; b) SEL is expecting a couple of new domestic e-2W makers to get added in coming months other than being in advanced stages of securing order from a global BEV maker; c) supply to Toyota for global hybrid car rotor shaft supplies to commence in Q1FY23 itself; d) bulk of the revenue has cost pass through clause with a lag of a month or quarter, barring exports (~30%). Thus, it would continue to face margin headwinds in near term, similar to Q3FY22; e) rising capacity utilisation in autos, rising mix of aluminum forging and aerospace business giving visibility of ~18% plus EBITDA margin by FY24E; and f) beginning of capex for a small facility in the US from FY24, with initial capital of US$15-US$18mn. We are largely keeping our FY22-FY23E estimates unchanged with 3%/6% increase in FY24E revenue/EBITDA, on the back of recent order wins. We maintain ADD with revised DCF based target price of Rs735 (earlier: Rs653), implying 18x FY24E earnings.

- Fresh order inflows adding to growth outlook: In FY19-FY22E, amidst ~35% decline in domestic 2W market (~40% revenue mix for SEL), covid impacted aerospace sector (~4-5% mix); SEL is set to deliver ~6% revenue CAGR during the period. This has been possible through continued addition of new customers and products in portfolio. In continuation, SEL recently added the order of aluminium forging components (powertrain agnostic parts) for BMW (Rs300mn p.a.), immediately after the anodising facility got on-stream. As per the management, further orders from BMW, KTM and other such premium 2W global brands are expected for aluminium forged parts in coming months. Also, post securing orders from 5 e-2W makers like TVS, KTM, BMW, Ola and Tork, SEL is looking forward to add a couple of more customers in Q1FY23 itself, amidst rising e-2W mix. It is also set to start executing the order from Toyota for the global hybrid car rotor shafts in present quarter. Order won from US bicycle maker for light-weighting would start getting executed from FY24E. SEL expects annual order execution for TVS Motor to reach Rs1.5bn by FY24E vs Rs500mn in FY22. In our estimates we are not building any potential futuristic order, expected to get converted soon from RFP/RFQ stage.

- Near-term margin to remain under pressure; aerospace, aluminum forging to add to aid margin revival: Though bulk of business is having cost escalation pass through clause with a lag of a quarter, exports basket (~30-35% mix) is still lacking the pass through clause, exposing SEL partly to the risk of rising commodity costs. Thus, we continue to build in ~16% EBITDA margin in FY23E vs potential levels of ~18-20%. We are building in ~18% EBITDA margin in FY24E based on improved operating leverage, rising mix of aerospace/aluminum forging parts and gradual price hikes by SEL across FY23E to mitigate cost inflation. With scope to ramp up auto segment utilisation from ~60%, capex need would remain steady at Rs2.5bn p.a.

Shares of Sansera Engineering Ltd was last trading in BSE at Rs. 674.50 as compared to the previous close of Rs. 689.75. The total number of shares traded during the day was 3208 in over 343 trades.

The stock hit an intraday high of Rs. 696.95 and intraday low of 671.00. The net turnover during the day was Rs. 2181486.00.

Source : Equity Bulls

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