Sansera Engineering Limited IPO – Detailed Analysis

Introduction :

• Sansera Engineering is an integrated manufacturer of critical and complex precision components which are used in automotive and aero-space sectors.
• The company supplies its products directly to OEMs based in India and International markets.
• As of 31^st July, 2021, the company has 16 manufacturing facilities among which 15 are located in India and 1 is in Sweden.
• The company has 3,873 number of employees and 4,533 workmen.

IPO Details

Client Ebene Limited and CVCIGP II Employee Ebene Limited together are holding companies as of the filing of RHP. Both companies are based in Mauritius and the main operations of these companies are investment holding.

Company Overview

• The company is a manufacturer of high quality and complex precision parts for automotive and non-automotive sector.
• In automotive sector, the company manufacturers a range of assemblies of precision forge and machine components. These have critical application in transmission, braking, engine, suspension, chassis and other important systems in passenger vehicles, commercial vehicles and 2-wheelers.
• In non-automotive sector, the precision parts are manufactured for aerospace, agriculture, off-road and engineering & capital goods sector.

Product Breakup:

• Sales of Products contribute 94.1% to the total revenue while other operating revenues contribute only 5.9%. The trend from past 2 years have remained similar.
• The company ranks among the top 10 suppliers for connecting rods in Light vehicle segment and also in top 10 for commercial vehicle segment globally.

Key product family and their applications, Source: Sansera Engineering Ltd RHP

Sector Breakup:

• The major revenue comes from the automotive sectors, in which the two wheeler segment currently has 50.4% contribution.
• The companies have long standing business relationship with Honda Motorcycle & Scooter India, Bajaj Auto and Yamaha which are the second, third and fifth largest 2 wheeler companies in India according to FY21 volumes.
• The company also has 30 year business relationship with Maruti Suzuki Ltd.

Company’s customers, Source : Sansera Engineering Ltd RHP

Geographical Breakup

• Majority of the revenue comes from the domestic market as the contribution from the same stands at 65%.
• Revenue from exports have increased in FY21 as reached at 35%. This could be due to the impact of lockdowns in domestic market and increase in exports.

• The company is a manufacturer of high quality and complex precision parts for automotive and non-automotive sector.
• In automotive sector, the company manufacturers a range of assemblies of precision forge and machine components. These have critical application in transmission, braking, engine, suspension, chassis and other important systems in passenger vehicles, commercial vehicles and 2-wheelers.
• In non-automotive sector, the precision parts are manufactured for aerospace, agriculture, off-road and engineering & capital goods sector.’

3. Financial Performance

• The revenue from operations of the company has decline by almost 2.3% CAGR since FY19.
• The EBITDA has increased by a very small amount and the EBITDA margin looks stable in these 3 years.
• Though the PBT has declined by 5.9% CAGR, The Net Profit of the company has increased by 5.8% CAGR in these 3 years.
• Adoption of new tax system led to reversal of deferred tax for the company, ultimately increasing its PAT in FY21.
• The Net worth of the company has shown a steady growth of 13% CAGR in 3 years.
• Debt to Equity ratio currently stands at 2 and has been on similar levels in past 3 years.
• Net Debt to Equity ratio stands at 0.55 in FY21 which stood at 0.81 in FY19.

4. Competitors

• The precision components industry is highly competitive as stated by the company in its RHP.
• Some of the companies build in-house components which prove to be a key competition for Sansera Engineering.

5. Key Strengths

• The company is a leading supplier of critical precision equipment to automotive and non-automotive sectors. The company is gaining market share in key sectors.
• These components require high standards of quality which require close coordination with the OEMs from designing to testing to delivery.
• They are also single source suppliers for some OEMs in India and globally.
• The company has been awarded business from almost 56 customers across automotive and non-automotive sectors globally.
• The company has well diversified product profile across customers, product portfolio and geographical revenue.

6. Key Risks

• The management expects COVID to have further impact on its businesses.
• No long term supply agreements with its customers.
• Top 5 customers contributed to almost 59.21% of its revenues. Loss of any these customers can lead to significant impact on the revenues.
• Pricing pressure from the customers is also a key risk for the company.

Valuation

• The PE ratio of Sansera Engineering Ltd stands at 35.4 and PB ratio stands at 4.4 when calculated on the basis of 12M trailing earnings and post market capitalisation of Rs. 3,823 crores of the company.
• The P/S ratio comes at 2.5 and EV/EBITDA is at 15.8.

Conclusion

The company is a leading player in precision components but most of the part currently cater to ICE engines. EV transformation could prove a risk for company if it does not adopt with the same. The high debt on the balance sheet also causes a risk adding to already present risk of client concentration.