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Targeting 20% RoCE amidst executing growth capex

We interacted with the management of Sansera Engineering (SEL) to get mid-year update on its business execution and outlook ahead. Following are the key takeaways: 1) Revenue is on course to meet the target of ~40% growth in exports in FY24, including ~50% growth in aerospace segment; 2) supplies to Triumph and Harley for the newlylaunched indigenised models would add to 2W segment revenue growth along with continued premiumisation of overall 2W market; 3) EBITDAM is on track to be at 17-18% in FY24 and inch up potentially higher in FY25 driven by the rising mix of exports/aerospace; 4) despite capex of INR 2.8-3bn p.a., SEL is confident of crossing ~20% pre-tax RoCE by FY25. We retain BUY on SEL with an unchanged target price of INR 1,133, implying 20x FY25E earnings.

Domestic 2W space to grow ~20% for SEL in FY24

As against the likely 2W industry growth of 10% in FY24, SEL is currently looking forward to ~20% revenue growth in FY24 from its domestic ICE 2W component space. Execution of the newly-launched models with INR 8k-10k kit value per unit like Triumph Speed 400, Harley X440, TVS Apache RTR310, would drive the growth other than improving mix within the sub-300cc models. On 2W EV front, recovery is happening in scale post a sudden decline in Jun-Jul’23 and SEL is expecting monthly EV market to return to its highs of April-May during festive season itself. For SEL, value addition per e-2W is more than 1.5x to that of average ICE model kit value.

Exports and aerospace growth on track as guided

As guided at FY23 end, SEL is on course to achieve FY24 target of ~40% revenue growth in exports (~INR 6.5bn+ exports), which would include aerospace segment revenue moving from ~INR 900mn in FY23 to ~INR 1.4bn in FY24. This elevated growth is on the back of recovery in semiconductor supplies in target markets other than execution of fresh orders. The 4,000T new press (INR 300mn capex), flexible between aluminium and steel forging would get operational from mid-FY25 and would help SEL take orders for larger-sized products. SEL is planning to invest in US warehousing and machining facility with capex of sub-INR 1bn H2FY24 onwards, with visibility of ramping up of orderbook from the likes of Cummins and an EV car maker.

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