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In Q1FY25, Sansera delivered a slightly lower than expected performance, however, overall growth in terms of revenue/EBIDTA/PAT are satisfactory. Revenue for the quarter stood at Rs.7.4bn (+12.7%/-0.3% QoQ) vs est of Rs.8bn, growth in domestic business helped to deliver double digit growth. Gross margin saw a jump of 18.6% YoY to Rs.4.4bn due to product mix. Operating profit for the quarter grew 11.5% YoY/+0.4% QoQ to Rs.1.27bn vs est of Rs.1.39bn and margin contracted on yearly basis by 18bps to 17.1%. Increased in staff cost and other expenditure offset the richer product mix. PAT for the quarter increase by 10.9% to Rs.496mn.

* Management expects significant growth, with 30%-35% in FY25 and 40%-50% CAGR in the aerospace and defense segment over the next 2-3 years. Capex for FY25 is projected at INR 4,500 million, with 40%-45% allocated to tech-agnostic and non-automotive areas. The Swedish subsidiary is expected to return to 12%-13% EBITDA margins next year, while MMRFIC is projected to maintain EBITDA margins above 50%. Overall, the company aims to grow 8%-10% above industry rates.

* However, The company faces potential risks from a slowdown in international markets, particularly in the second half of FY25, which could impact overall growth. Additionally, cost pressures in the xEV segment and challenges from the reorganization of its Swedish subsidiary with Volvo may affect future margins and profitability.

* Continued growth, driven by light-weighting and premiumization, is set to outpace industry expectations: SEL has already started production of aluminium forged components, and all the existing lines are fully booked, with plans to add more lines and the new lines are coming for heavier component in Aluminium and steel. In the 2W segment, premiumization trend continues to increase, and some of SEL's customers are aggressively adding premium content to their vehicles like HD and Triumph. The new capex is largely towards the light-weighting products. We expect the light-weighting and premiumization trend to continue supporting better-than-industry growth for SEL.

Outlook & Valuation: Given the industry's shift towards higher CC segments from lower CC 2W and the integration of more premium components with lightweight materials, the automotive industry is poised to register healthy growth moving forward. SEL is undergoing a transformation from an automotive to a non-automotive and xEV-agnostic products supplier by its ability to adapt to these changes. In the medium to long term, we anticipate substantial revenue growth for SEL driven by: 1) an increasing proportion of revenue generated by the non-automotive segment; 2) securing new orders for engine-agnostic components; 3) an increase in the share of aluminum components; and 4) a revival in the export business, which will contribute to margin expansion in the coming quarters. We expect revenue/EBIDTA/PAT to grow at a CAGR of 20%/24%/29% over FY24-26E and value the stock based on 27x FY26E EPS and arrive at the TP of Rs.1557 and recommend BUY rating.

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