Buy Sansera Engineering For Target Rs.957 - Anand Rathi Share and Stock Brokers
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Continuous customer additions, recovery in exports; retaining a Buy
For Sansera Engineering, order wins across segments were strong in Q3. The new aerospace and Defence facility is expected to be commercially available by end-Q4 FY23. The company added a customer in the PV segment to supply connecting rods, which we believe could turn into a bigger order in the long term. The current order book is expected to peak in the next two years, which would lead to greater profitability, in our view. Accordingly, we maintain a Buy at a revised TP of Rs957 (16x FY25e).
Consistent built-up in the OB. In Q3, the company continued to secure orders from marque OEMs across automotive and non-automotive segments, leading to a Rs15bn OB (Rs14.2bn the prior quarter). It started supplies to Tata Motors in the PV segment with a 50% share of business and has an order of 1m connecting rods by FY24. Similarly, it continues to obtain orders from North America across automotive applications (agri, off-road and others). Europe was weak on geo-political tensions, but is expected to bounce back strong in FY24. For its aerospace and Defence segment, the new facility is expected to be available by Q1 FY24. At peak capacity utilisation, it could generate ~Rs3.5bn revenue (the co. has additional land parcel available equal to the size of the new facility, which would generate another Rs3.5bn), said management. We believe the proportion of the non-auto segment would grow as production commence. Accordingly, we expect 28% growth in FY24 and 16% in FY25
Margin expansion in the next two years. The Q3 gross margins expanded 226bps sequentially to 40.1% as raw material prices cooled down. We expect the proportion of defence and aerospace to grow better than auto, based on the increasing orders within the segment. Accordingly, we expect margins of 17.6% in FY24 and 18% in FY25..
Valuation. We expect a 22% CAGR in revenue over FY23-25 and 40% earnings growth, leading to an EPS of Rs59.8. We maintain our Buy rating, at a revised TP of Rs957 (16x FY25e).
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