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In Q2FY25, 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.7.63bn (+10.2%/+2.6% QoQ) vs est of Rs.7.79bn. Gross margin saw a jump of 14.8% YoY to Rs.4.51bn due to product mix. Operating profit for the quarter grew 13.0% YoY/+4.4% QoQ to Rs.1.33bn vs est of Rs.1.36bn and margin expanded on yearly basis by 44bps to 17.4%. Increase in staff cost and other expenditure offset the richer product mix. PAT for the quarter increased by 7.8% to Rs.506mn.

* Management expects significant growth, with 35%-40% CAGR in the aerospace and defense segment over the next 2-3 years. Capex for FY25 is projected at INR 4,500 million, with 60% of its future capital expenditure to new-age components within the Tech Agnostic, xEV, and Non-Auto segments. The Swedish subsidiary is expected to return to double digit EBITDA margins next year.

* The non-automotive segment will diversify the product portfolio: This segment remains a small but promising contributor, expected to grow with the recent order for Airbus A220 components. To strengthen offering in the aerospace field, company to add a special process facility to the existing machining facility. Expect to add this capacity by mid FY26 and subsequently fully utilized by FY27. Currently the company is dependent on outside vendors for doing all the special process but with a lot of potential new order inflows and higher value-added parts the company plans to add this facility. The company also secured an order from a semiconductor equipment manufacturer. This marks the company's entry into the semiconductor business and is expected to contribute 55% of the Non-Auto order book. The company expects Non auto sector to improve in the coming quarters due to a stronger monsoon and new orders from stationary engine and HCV customers.

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 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 16%/19%/24% over FY24-27E and value the stock based on 30x Sep-FY27E EPS and arrive at the TP of Rs.1493 and recommend HOLD rating.

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