Auto Components News

Stock to buy: Searching for alpha? This debutant auto-parts maker can jump upto 50%

NEW DELHI: Sansera Engineering, a manufacturer of critical precision forged and machined components, is likely to provide the much needed alpha to your portfolio amid a range-bound market and high stock valuations.

The counter could surge up to 50 per cent from current levels, said the first initiation of coverage on Sansera Engineering by Nomura Financial Advisory and Securities. The brokerage house has given a target of Rs 1,184 in the next 12 months.

The company got listed in September and has gained over 6 per cent. However, it is trading below the listing price of Rs 811. But things could change soon for the stock.

Siddhartha Bera, an analyst with Nomura, says the company is in the process of transforming into a diversified play on high-quality parts across several new segments like aerospace, electric vehicles, rotor and braking.

The company already has strong in-house engineering, design and machine building capabilities. It is the largest supplier of connecting rods in India and among the top 10 globally. The segment contributed about 40 per cent of FY21 revenue.

Auto industry commentators have said the two-wheeler and passenger vehicle (PV) segments in India and the PV industry globally will require much faster model cycles as competition heats up and the EV/hybrid mix rises. These new models will also require new lightweight materials and much higher tolerance.

“We believe Sansera is well positioned to benefit from this scenario as the management has been building internal capabilities to partner with OEMs (original equipment manufacturers) right from the design stage, forge new materials, and quickly set up efficient lines due to its machine building skills,” says Bera.

Early signs of success are already visible, say analysts.

Sansera has received orders with peak annual revenue of Rs 1,250 crore, spread across tech-agnostic/EV and non-auto. Nomura expects the revenue mix to diversify from 83 per cent in the ICE segment in FY21 to 69 per cent by FY24, while tech-agnostic/non-auto share should increase to 12 per cent/19 per cent from 5 per cent/12 per cent in FY21.

The broker says financial ratios, top line and bottom line will improve in tandem. “We expect ROE to improve to 23 per cent by FY24 from 13 per cent in FY21. We expect Sansera to deliver 26 per cent revenue CAGR and 44 per cent PAT CAGR over FY22-24,” Bera says.

The impressive growth possibility makes it a long-term bet, say analysts. As the company demonstrates its EPS growth driven by new-order wins in non-auto/EVs and hybrids, many expect a significant re-rating. Historically, Sansera has grown well ahead of peers.

“With the auto component industry expected to grow over the next few years on the back of OEM demand, well diversified business model and strong financial performance above industry trends, the outlook of the stock remains constructive and therefore investors can hold this stock for a long term,” says Likhita Chepa, Senior Research Analyst at CapitalVia Global Research.

In the second quarter, the company reported a profit growth of 11 per cent while revenue climbed 25 per cent year-on-year. Ebitda margin for Q2FY22 stood at 20.1 per cent.

BR Preetham, Group CEO of Sansera Engineering, says: “We are in the process of setting up a dedicated facility for hybrid and electric components at one of our plants in Bangalore and a new plant for aerospace & defense. The plants are expected to be commissioned during FY22. In the long term, the company is targeting an enhanced revenue base with auto ICE contributing about 60 per cent, auto-tech agnostic & xEV contributing 15 per cent and the remaining 25 per cent being non-auto.”

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