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Beat driven by exports; sustainability of profitable growth the key ahead

Sansera Engineering’s (SEL) Q1FY24 EBITDAM at 17.3% was up ~180bps QoQ driven mainly by improved exports mix. Orderbook stands at INR 17bn with ~53% of it from tech-agnostic/EV/non-auto segments. SEL expects its revenue to be boosted by recovery in the 2W segment, premiumisation in 2Ws and increased content per vehicle. Company is confident of delivering ~50% growth in ex-India revenue in FY24 on benign base and grow its aluminium forging and aerospace businesses to drive exports beyond FY24. Capex for FY24 is planned at ~INR 3bn. We are factoring-in an EBITDAM of 18%/19% for FY24E/FY25E led by rise in export revenue mix. Maintain BUY with a revised DCF-based target price of INR 1,133 (earlier: INR 1,033), implying 20x FY25E earnings.

Conference call key takeaways, and our views:

* Strong revenue growth of 24% YoY was driven by 35% growth in international business and 20% in domestic business. Auto tech-agnostic + EV revenue surged 101% YoY (~10.4% of total revenue) and non-auto revenue was up 32% YoY at 12% of total revenue as against 9% increase in auto ICE revenue. Against current revenue mix of 78% from the auto ICE segment, SEL is confident of reaching 60% mix in next 3 years on the back of a rising orderbook for EVs, aerospace, aluminium forging and industrials. New order execution of TVS, Royal Enfield and Tata Motors continued to drive domestic auto ICE growth for SEL much ahead of industry volume growth. We are building-in ~20% revenue CAGR in FY23- FY25E, driven by: 1) revival in exports, 2) ramp-up in execution of new orders, 3) larger 4,000T press likely getting operational from FY25 helping SEL execute new orders, and 4) rising aerospace revenue. Orderbook stood at a record INR 17bn (auto ICE contributing 47%) and Q1 order addition was at INR 3.7bn with new orders from existing customers like TVS, Stellantis, Cummins, etc.

* EBITDAM of 17.3% during the quarter was up 200bps QoQ with revenue increase of 7% QoQ. Despite a seasonally weak Q1, growth was driven by higher margin in the export business. Going ahead, with export mix targeted at ~40% vs current ~32% and EV/tech-agnostic segment mix set to increase as well as rising revenue from aerospace segment, SEL is targeting ~20% EBITDAM in next 2-3 years. Capex in FY24 is targeted at INR 3bn, slightly above the INR 2.5bn budgeted earlier. The capex is dedicated to incremental project execution, related line expansion, and line rebalancing needs. We believe, with exports mix set to rise, working capital intensity would also inch up as, typically, export business WC days are at ~120- 130 vs domestic business at sub-50 days.

Key risks

* Slower-than-expected growth of domestic 2W market in FY24-FY25.
* Faster-than-expected adoption of e-motorcycles in India.
* Slower-than-expected revival in exports and aerospace revenues in FY24.

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