Sansera Engineering’s Rs 1,283-crore IPO (initial public offering) has opened for subscription and will close on 16 September 2021.
Sansera Engineering’s Rs 1,283-crore IPO (initial public offering) has opened for subscription and will close on 16 September 2021. So far on the first day of bidding, Sansera Engineering IPO has been subscribed 50 per cent. In the primary market, Sansera Engineering shares were seen commanding a premium of Rs 35 over the IPO price of Rs 744, the upper end of the price band. On Tuesday, shares were trading at Rs 779 apiece, a premium of nearly 5 per cent in the grey market, according to the people who deal in unlisted shares of the companies.
On Monday, Sansera Engineering allocated 51.35 lakh equity shares to 27 anchor investors and raised Rs 382.05 crore at the upper band of Rs 744 per share (including share premium of Rs 742 per equity share). Government of Singapore, Monetary Authority of Singapore, Nomura, Abu Dhabi Investment Authority, Axis Mutual Fund (MF), ICICI Prudential MF, SBI Life Insurance Co Ltd, Max Life Insurance Company and Kuber India Fund are among the anchor investors. Those offering shares in the OFS are existing investors Client Ebene, CVCIGP II Employees Ebene and promoters — S Sekhar Vasan, Unni Rajagopal K, F R Singhvi and D Devaraj. Half of the issue size has been reserved for qualified institutional buyers (QIBs), 35 per cent for retail investors and the remaining 15 per cent for non-institutional investors.
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ICICI direct Research
Sansera Engineering clocked EBITDA margins of 17.6% in FY21 with return ratio at 10-12%. On the b/s front, as of FY21, debt to equity is at 0.6x. In terms of valuation, it is priced at ~35x P/E on FY21 EPS (| 21/share) at the upper end of price band i.e., Rs 744. According to the brokerage firm, the key risks include fFailure to adapt to industry trends and evolving technologies, dependence on certain key customers, and pricing pressure from customers.
Rating: Positive View
The auto component industry revenue is expected to grow at a CAGR of 11.9% over FY2021-26 to reach Rs 5,284 bn led by OEM demand, increase in production and higher outsourcing to auto component players by OEMs. Also, exports are expected to increase at a CAGR of 9.4% over FY 2021-26, driven by PLI schemes, improvement in Indian safety and emission norms and domestic companies gaining technological capabilities through joint ventures. “We believe these factors are likely to benefit auto component players in the coming time,” it said. The key risks are the company’s high dependency on a few key customers, and increase in raw material prices.
Rating: Not Rated
Sansera’s business model is well diversified by customer base, end segment, geographical spread of revenues and product portfolio. The company were suppliers to 71 customers during Fiscal 2021 as compared to 64 during Fiscal 2019 and are continuously pursuing new customer relationships. Sansera derives revenue from multiple segments within the automotive sector, including the two-wheeler, passenger vehicle and commercial vehicle verticals. Within the non-automotive sector, it manufactures and supply a range of precision components for the aerospace, off-road, agriculture and other segments, including engineering and capital goods.
At the higher price band of Rs744, the issue is valued at P/E of 34.8x on FY21 EPS basis which is in line with peer avg. trailing P/E of 34x. As per our view, likely strong revenue growth and healthy EBIDTA margin over 15% to boost profitability in the coming future. The brokerage firm said that investors’ sentiments remain weak towards automotive companies amid fear of rising competition from electric vehicles (EV) players and requirement for capex requirement for EV expansion. As per the Crisil report, EV penetration in TW motorcycles will be less than 1% by FY26, ~4% for PVs and ~25% for TW scooters which indicates shift towards EVs would be more gradual in the longer term.
Sansera Engineering is one of the top 10 global suppliers of connecting rods within the Light Vehicle segment and Commercial Vehicle segment for CY 2020. The company has strong relationships with respected Indian and global OEM’s. They have a well-diversified portfolio of segments, products, customers and geography. On the valuation front, the issue is priced at P/E of 36.2x based on FY21 earnings, diluted equity shares and upper price band which is fairly priced when compared to its listed industry peers (i.e, Endurance Technologies-43.3x, Minda Industries-91.6x, Sundram Fasteners-50.4x, Suprajit Engineering-30.7x and Motherson Sumi-64.1x). “Considering the strong product portfolio, advanced manufacturing capabilities and robust track record, we give a ‘subscribe’ rating for the long term,” it said.
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