Sansera Engineering is a 40 year old company specializing in automotive components and in industrial components with focus on high-end precision engineered products. Their areas of product specialization include engine, transmission, suspension, braking, chassis and other auto related systems.
A predominant 89% of their revenues come from the automotive sector while the balance 11% comes from the industrial precision segment. The company has 16 manufacturing facilities, including one facility in Sweden. Exports and global sales account for 35% of total sales with the balance coming from domestic markets.
In order to give an exit to early shareholders, Sansera Engineering is tapping the primary market with an IPO of Rs.1,283 crore. The IPO is priced in the band of Rs.734-744. The entire issue is an offer for sale (OFS), so no fresh funds come into the company.
Important Financials of Sansera Engineering
The company has a relationship with Maruti Suzuki stretching for more than 30 years as well as with the former Fiat Chrysler. It is one of the top 10 suppliers of connecting rods for the commercial vehicle (CV) segment.
Despite the pressure exerted by COVID and COVID 2.0 on its numbers, the company has managed to consistently improve key ratios like its net margins and EBITDA margins. Even the ROE is up over last year, albeit lower than 2019.
Sansera is not only present in the automotive and industrial space, its customer groups are spread across the spectrum. For example, it has clients across automotive, engineering and defence products. It has also delivered ROCE of over 15% and that is extremely healthy in this auto component industry where input cost pressures have been quite high.
What should investors do with the Sansera Engineering IPO?
The company is not looking at fresh funds for expansion as its internal reserves are adequate to fund its expansion plans. The OFS is purely meant to list the stock and give greater visibility to the stock as currency and as a leverage for future inorganic growth. Here are some key factors in arriving in at an investment decision.
- Most of the customer segments are high growth sectors including automotive, engineering, aerospace and agricultural activities. That should keep the order books of the company ringing continuously.
- Has an India leadership position in the manufacture of connecting rods, crankshafts, rocker arms, gear shifter forks for two wheelers as well as connecting rods and rocker arms for passenger vehicles.
- In terms of P/E ratio, Sansera Engineering is expected to have a post-IPO indicative valuation of Rs.3,823 crore. That is a P/E ratio of 35X at the upper band of the IPO, which is still lower compared to 96X for Minda Industries, 46X for Sundaram Fasteners, 65X for Motherson Sumi and 88X for Mahindra CIE Automotive.
Sansera Engineering has built strong design skills, solid relationships with customers and an established track record. Its valuations at 35X are still lower than most of competition and does leave room for upsides. However, this stock is meant for investors with a longer term perspective and a higher appetite for risk.
The article is for informative purpose and does not suggest to buy or sell or hold. Decision or investing is to be taken by individuals.
Evaluate investing in the IPO based on your individual risk tolerance, investment Span etc.