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Sansera in Q2FY24 delivered decent performance and offset the weak domestic business performance by registering healthy growth in international operations which grew 40% YoY basis. In Domestic market, a weak set of performance in the 2W segment impacted the overall top line growth. The management expects to achieve healthy export growth in H2FY24, driven by the order book, execution of new orders and commissioning of new press lines. Top line for the quarter came at Rs.6.92bn (+9.3%/+5%QoQ) vs est. of Rs.7.19bn. Muted growth (-1% YoY basis) in Auto ICE segment was compensated by 37% YoY growth in Non-Auto segment and 7% growth in Auto tech agnostic. Operating profit for the quarter grew 9.3% YoY/+3.5% QoQ to Rs.1.18bn vs est. of Rs.1.25bn. PAT on YoY basis grew by 1.7% to Rs.471mn.

* Better-than-industry growth is likely to be sustained, led by light-weighting and premiumization trend: SEL has already started production of aluminium forged components, and all the existing lines are fully booked, with plans to add more lines. SEL also won a new order in the light-weighting segment from a UK-based PC manufacturer which is expected to start SOP from H2FY24. In the 2W segment, premiumization 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 lightweighting products. We expect the light-weighting and premiumization trend to continue supporting better-than-industry growth for SEL.

* The non-automotive segment will diversify the product portfolio: SEL's future expansion is happening in the non-automotive segment, and the management has increased its capex guidance for FY24, attributing it to capacity expansion, line balancing, and facility build-up. The company has also realigned its vision and raised its long-term sales contribution targets for xEV and tech-agnostic products from 15% to 20%. 60% of sales contribution will come from auto ICE, while 20% each will come from non-auto and xEV and tech-agnostic portfolios.

* Outlook & Valuation: Given the shift in the industry such as preference to higher CC segment from lower CC in 2W and addition of more premium components with lightweighting material, auto industry is poised to register healthy growth going forward. SEL is transforming itself from an automotive to a non-automotive and xEV-agnostic products supplier by its ability to adopt the changes. In the medium to long term, we expect SEL will experience substantial revenue growth led by: 1) an increasing proportion of revenue being generated by the non-automotive segment; 2) securing new orders for engineagnostic components; 3) rise in the share of aluminium components; and 4) revival in the export business, which will aid in margin expansion in the coming quarters. We expect revenue/EBIDTA/PAT to grow at a CAGR of 16%/21%/27% over FY23-25E and value the stock based on 23x FY25E EPS and arrive at a TP of Rs.1030 with Outperform rating.

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