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Robust order wins to ensure industry leading 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 & xEVs ~6%

Key triggers for future price performance:

* History of consistent outperformance to industry. We expect the trend to continue amid robust order wins from domestic & marquee OEMs in global space with consequent sales growth built in as 17.8% over FY22-24.

* Strong focus on de-risking the existing product profile (engine heavy) with five year sales target at 25% from non-auto and 15% from AUTO-TECH AGNOSTIC & xEVs, primarily riding on indigenously developed capabilities. It has developed drivetrain, suspension, steering and braking components in this direction for the vehicle categories namely 2-W, PV and CV space

* With raw material a complete pass through, albeit with a time lag, we see margins stabilising at ~18% mark building in operating leverage benefits. Consequent return ratios are expected to improve to ~17% levels by FY24E. Ensuring PAT growth is seen at 33.7% CAGR over FY22-24E.

* Healthy b/s, with total debt at | 645 crore (FY22) with debt: equity at ~0.6x & consistent positive cash flow from operations (>| 200 crore per annum). Forward capex spends of ₹250 crore/year to be met through internal accruals

* Long standing customer relationship with OEM’s like Maruti Suzuki, Honda Cars, Toyota among others in the PV space and Bajaj Auto, HMSI, Royal Enfield among others in the 2W space. Top 5 customers contribute ~54% to its sales with Bajaj Auto as its anchor client contributing ~17% to its sales.

What should investors do? SEL’s price has corrected ~18% since listing from ~| 818 levels in September 2021, underperforming the wider Nifty Auto index.

* We initiate coverage on SEL with a BUY rating on the stock amid robust order book wins & strong penchant to grow ahead of industry

Target Price and Valuation: We value SEL at | 900 i.e. 20x P/E on FY24E EPS of | 45, building in 18%, 34% sales, earnings CAGR, respectively, over FY22-24E.

Alternate Stock Idea: In our auto universe, we also like Mahindra & Mahindra.

* Focused on prudent capital allocation, UV differentiation & EV proactiveness

* BUY with target price of | 1,200

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