Buy Sansera Engineering Ltd For Target Rs.860 - ICICI Direct
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Healthy performance, fundamental levers for growth…
About stock: Sansera Engineering (SEL), established in 1981, is a Bengaluru based engineering led integrated manufacturer of critical precision forged components (engine, non-engine oriented) for end application in predominantly auto domain.
* FY22 geography mix: India 63%; Europe: 24%; US: 9%; Others: 4%
* FY22 end-user mix: auto ~83%; non-auto ~11%; auto-tech & EVs ~6%
Q2FY23: SEL reported a healthy performance in Q2FY23.
* Consolidated sales rose 19% QoQ to | 634 crore
* EBITDA was at | 106.2 crore with margins down 20 bps QoQ to 16.8%
* Consolidated PAT was up 35% sequentially to | 46 crore
* For the quarter, domestic operations outperformed the mellow export show
What should investors do? SEL’s price has corrected ~10% since listing from ~| 818 levels in September 2021, underperforming the wider Nifty Auto index.
* We maintain BUY rating amid robust order book, strong export order wins, precision engineering capabilities and tendency to outrun industry growth
Target Price and Valuation: We value SEL at | 860 i.e. 22x P/E on FY24E EPS of | 38.8, building in 15%, 25% sales, earnings CAGR, respectively, in FY22-24E.
Key triggers for future price performance:
* With a robust order book in domestic as well as global space amounting to peak annual revenues of ~| 1,420 crore amid marquee OEMs as its key clients (including Boeing), we expect sales to grow at 15% over FY22-24
* With cooling off commodity prices, improved product mix & operating leverage at play, we see margins stabilising at ~18.2% mark by FY24E
* Strong focus on de-risking the ICE portfolio with five year sales target at 25% from non-auto & 15% from auto-tech agnostic and xEVs
* Healthy b/s, with debt at ~| 670 crore (H1FY23) with debt: equity at ~0.6x and consistent positive cash flow from operations (>| 200 crore per annum), RoCE, RoE are expected at ~15.1%, 14.6%, respectively, by FY24E
Alternate Stock Idea: In our auto universe, we also like Mahindra & Mahindra.
* Focused on prudent capital allocation, UV differentiation & EV proactiveness
* BUY with a target price of | 1,590
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SEBI Registration number INZ000183631
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