Buy Sandhar Technologies Ltd for the Target Rs 950 by Emkay Global Financial Services Ltd
We hosted Jayant Davar, Executive Chairman and CEO of Sandhar Technologies, for a roadshow in Singapore. KTAs:
1) The management reiterated its guidance of doubling revenue by FY29, expanding EBITDAM by ~50bps pa through FY29 (9% in FY26), and improving ROCE to >20% (11% in FY26).
2) Growth is likely to be broadbased, driven by capability build-up in sheet metal, cabins, fabrication, and aluminum die casting (Rs13bn total capex over FY22-26; gross block up 2x since FY22), along with premiumization (smart locks, electronic mirrors, etc).
3) A favorable domestic 2W demand environment, Sandhar’s high 2W exposure (67% of FY26 revenue), and robust growth trajectory of key client TVSL (~39% of FY26 revenue) provide strong tailwinds.
4) Sandhar is entering a monetization phase, with operating leverage from the ramp-up of new projects expected to drive margin expansion (Rs3.4bn invested across 5 initiatives; expected to turn profitable by H2FY27/FY28).
5) Its overseas track record is helping win new orders in India from global OEMs; overseas operations were near PBT breakeven in 4QFY26 and target breakeven in FY27.
6) Growth would be further aided by strategic M&A, with opportunities currently under evaluation.
7) The recent spike in labor and energy prices may weigh on 1HFY27 margin; it is negotiating with OEMs to trim the price reset cycle from 3M/6M to 1M/3M in India/overseas operations to protect margins. We model 14%/17%/32% revenue/EBITDA/EPS CAGR over FY26-29E. We maintain BUY (Investments behind; earnings leverage ahead; initiate with BUY) and revise our TP up by ~6% to Rs950 (from Rs900) at 20x Jun-28E EPS (rolled forward). Sandhar trades at ~13x FY28E PER (vs ~28x peer average).
Broad-based growth strategy underpinned by technology, capex, and strategic M&A
Sandhar targets to double its revenue by FY29 (implying 27% FY26-29 CAGR) and expand EBITDAM by 50bps pa through FY29, supported by broad-based growth across segments, driven by capability build-up in sheet metal, cabins, fabrication, and aluminum die casting, along with premiumization. Sandhar’s offerings are ICE-agnostic, and the management believes it is at an inflection point in castings, sheet metal, and fabrication, with Sandhar a top 5 player in these segments in terms of technological capabilities. Growth to be further aided by strategic M&A (with opportunities actively under evaluation)
Asset turnover improvement via new project ramp up to expand profitability
The newer projects (Rs3.4bn invested across 5 initiatives) are in various stages of ramp-up and are expected to turn profitable by 2HFY27/FY28. The management guided for a 2-2.5x asset turnover for these projects in FY27, making them key drivers of its targeted improvement in ROCE and margins (close to EBITDA breakeven as of FY26). The balance sheet remains comfortable, with Rs9.5bn debt (excl lease liabilities, of which ~6bn is core working capital).
Global footprint adds further legs; PBT breakeven expected in FY27P
Sandhar is focused on building an overseas presence, which is proving strategically valuable as global customers expand into India. Relationships established with major overseas customers have directly led to business wins from them in India. Overseas operations were near PBT breakeven in 4QFY26 and target breakeven in FY27. Sandhar has also set up a new assembly plant in Mexico, offering revenue potential of Rs1bn, while simultaneously expanding its aftermarket business with a Rs2bn revenue target.
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