Shining Star Sansera Engineering Ltd

Recommended PriceRs.1007
Target Price Rs. 1243
Upside %23.43%
Investment Horizon 1 year

Sansera Engineering, based in Bengaluru since 1981, is a top-notch company that makes very specific and important parts for cars and other industries. They’re really good at making parts like Connecting Rods and Rocker Arms for motorcycles and light motor vehicles, and they’re known worldwide for their quality. They’ve got 17 places where they make these parts, mostly in India but also one in Sweden. Sansera is growing by making parts not just for regular cars but also for electric vehicles, defence, and aerospace industries. Their business is doing well, with their sales and profits growing steadily over the last ten years. They’ve managed to get a bunch of different customers, which means they’re not too dependent on just a few big ones for their income. Right now, most of their money comes from making parts for traditional cars, but they plan to make more from electric vehicles and other non-car stuff in the future.

Why do we need to invest in Sansera Engineering?

Strong order book provides revenue visibility

By December 2023, the company really stepped up its game by getting new orders worth Rs 2,040 crores annually, showing they’re moving beyond just making parts for traditional engines. Now, more than half of their new business, about 53%, is from areas other than the usual engine parts. This includes 12% from general car tech, 18% from electric vehicles (EVs), and 23% from industries outside of cars. The rest, 47%, still comes from traditional engine parts. Interestingly, only 15% of their entire order book is from the two-wheeler engine sector, which is the part of their business most likely to be affected as more people switch to electric vehicles. This shows the company is adapting well to changes in the market, focusing more on electric vehicles and other new areas.

Auto-Tech Agnostic, xEV, and Non-Auto products to help reduce portfolio risk and propel future growth

The company is making a big move to rely less on traditional car engine parts (ICE components) in the coming years. Right now, these parts make up 76% of their sales, but they plan to reduce this to 60%. To fill the gap, they’re looking to increase sales from tech-savvy car components, electric vehicle parts, and other non-car products to 20% each. Aerospace is already adding about 4% to their total income, and they’ve got a special production line for Aerospace and Defence that’s completely booked. To handle the growing number of orders, they’ve opened a new facility in Bengaluru, dedicating most of it to aerospace and some to defence. This new place, built on 10 acres at a cost of about Rs. 130 crores, started working in the first part of this financial year. It’s expected to bring in around Rs. 350 crores when it’s running full blast. With aerospace business orders reaching Rs. 121 crores, they’re aiming for aerospace and defence to make up more than 10% of their total sales, a big jump from the current 4%

Strong core portfolio to take advantage of the premiumization of products and the evolving regulatory landscape

Sansera has grown from focusing on just one customer and product area to being involved in a bunch of different sectors like aerospace, defence, and electric vehicles (EVs). They’re known for making important parts like Connecting Rods, Rocker Arms, and Crankshafts for car companies in India and around the world. By using its skills in design and engineering, Sansera has moved into new areas such as making parts for airplanes, military equipment, and EVs. They’re also creating new types of car parts that aren’t just for traditional engines, aiming to get a bigger slice of the car market. As cars start to use more lightweight materials, Sansera sees a chance to use more aluminium in their products. They’ve just finished building a new place in Bidadi to make these aluminium parts, with plans to start making stuff there by the second quarter of the next financial year. This includes making big parts for farm equipment and other industries. Sansera is also making a name for itself in the EV market by getting orders from several car makers, showing they’re staying ahead in the fast-changing car world.

Investing in cutting edge platforms of the modern era

Sansera has just made a big move by investing Rs. 20 crores in MMRFIC Technology Pvt. Ltd., a company based in Bengaluru that’s all about creating cool tech for the future, like parts for advanced radars and sensors that use AI and machine learning. This investment could increase Sansera’s ownership in MMRFIC from 21% to 51%, depending on certain conditions. MMRFIC is into some serious high-tech stuff, making components that can be used in cutting-edge areas like defence, space, self-driving cars, and security systems. Sansera’s main reason for putting money into MMRFIC is to dive into these high-tech fields and work with a team that’s really good at research and engineering. This could open new doors for Sansera in markets that are all about the technology of tomorrow.

Valuation & Outlook

Sansera has been doing really well lately, bouncing back strong in different parts of the world. They’ve smartly moved into booming areas like aerospace, defence, and electric vehicles (EVs), using their top-notch design and engineering skills. This shift has made them a key player, especially with their new tech-savvy auto parts increasing their role and earnings per vehicle. They’ve also started a new plant in Bidadi for Aluminium Forging & machining, aiming to meet growing demands in farming and other heavy-duty vehicle markets. They’re aiming to boost their aerospace and defence earnings from 4.6% to over 10% in the next few years, showing they’re pretty confident about making it big in these sectors. Plus, with a good chunk of their sales coming from overseas, they’re not too worried about ups and downs in the Indian market. Looking ahead, Sansera’s well-placed for continued growth thanks to its strong engineering, new opportunities beyond auto, and smart financial management. They’re planning to spend Rs. 200-250 crores each year on growing their business, funded by the money they make themselves. They’re also shifting more towards non-traditional car parts, which should make the company more valuable. We expect their profits to get better, driven by a mix of more sales in non-auto and better efficiency. Given all these good points, we think the stock will go up to Rs. 1,243 in a year, offering a pretty solid return for investors.

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