Sansera Engineering IPO

Sansera Engineering is an engineering-led integrated producer of complicated and crucial precision designed components.

They manufacture and provide a comprehensive range of quality forged and machined components comprising of connecting rods, rocker arms, crankshafts, stem comps, and forged Aluminium parts for vertical two-wheelers, passenger automobiles, and commercial vehicles' engine, gearbox, suspension, brakes, chassis, and other systems and assemblies for the automobile industry.

The firm manufactures and sells precise components for aerospace, off-road, agriculture, and other industries, including engineering and capital goods, in the non-automotive industry.

About the IPO

Sansera Engineering's initial public offering (SME IPO) subscription has started on Tuesday, September 14, 2021. It will end on Thursday, September 16, 2021. The business plans to raise 1283 crores through an initial public offering (IPO) with a price range of 734 to 744 rupees.

The IPO's minimum bid is 20 shares, which costs Rs. 14,880 per lot. According to the RHP papers, employee investors will receive a 36 per cent discount per equity share.

The company's initial public offering of 17,244,328 equity shares is an offer for sale (OFS) by current shareholders and promoters. In the grey market, it charges a premium of Rs 70.

Sansera Engineering IPO details

Sansera Engineering IPO detailsSubscription Dates14 – 16 September 2021Price BandINR734 – 744 per shareFresh issueNilOffer For Sale17,244,328 shares (INR1,265.73 – 1,282.98 crore)Total IPO size17,244,328 shares (INR1,265.73 – 1,282.98 crore)Minimum bid (lot size)20 sharesFace Value INR2 per shareRetail Allocation35%Listing OnNSE, BSE

Objectives

1. Strengthen worldwide market share in the present automotive product portfolio
2. Improve profits by focusing on operational efficiency.
3. Continue to increase the addressable market by leveraging current skills to diversify into non-automotive businesses.
4. Diversify into new products
5. Continually focus on technical capabilities to maintain and improve technology leadership

Allocation

The allocation for the investors is in the following manner. The retail institutional investors of this IPO is 35%, the QIB portion is 50%, and the HNI portion is 15%.

Financial Highlights of the Company

Automotive generated 88.45 per cent of sales in FY21, while non-automotive contributed 11.45 per cent. India accounts for around 65 per cent of the company's income, with the remaining 35 per cent coming from other nations. The firm is a leading provider of connecting rods all around the world. The firm has 15 production facilities in India, with nine of them in Bangalore.

In FY21, the average capacity utilization across its manufacturing units fell from 69 per cent in FY19 to 49 per cent. It was able to profit from its product range and product mix diversity.

In FY21, sales in India accounted for 64.98 per cent of SEL's total income, while international sales accounted for 35.02 per cent. Sansera was able to retain a better EBITDA margin than its counterparts in the car components business.

The company is showing growth in profit in the last 3 years where we saw a minor dip in FY20 on the back of COVID-19. Profits of the company have grown at a CAGR of 3.86% from Rs 980 cr to Rs 1098 cr over the period of FY19 to FY21, while revenue declined by 4.35% from Rs 16,408.09 cr to Rs 15,723.64 cr over the period of FY19 to FY21.

Competitive Advantages

1. The company majors in engineering and design.
2. It is the leading provider of high-quality accurately designed components to the automotive and non-automotive industries.
3. The company financial results are excellent
4. It has strong ties with well-known Indian and international OEMs.
5. It consists of a well-balanced portfolio of categories, goods, clients, and locations.
6. The Management staff is skillful.

Risks

1. They don't have any long-term supply contracts with their customers.
2. Their business is dependent on the sale of their products to some of their loyal customers.
3. The company's future growth rate is not positive.
4. They provide completed components to OEMs for the majority of their products, resulting in considerable value addition.
5. The production process is time-consuming and expensive with unpredictable deadlines and consequence.
6. The COVID-19 epidemic has had a major detrimental impact on their business and will continue to do so.

Recommendation

According to our Senior research analyst at Swastika Investmart, at the upper band of INR 744, the issue is valued at P/E 35(x) to its FY21 EPS of INR 21.02. The casting and forging business is expected to grow at a pace of 13%44% as compared to 5%-7% currently which is going to be lead by the efforts made by govt to rejuvenate the economy on the back of Make in India.

A big push is expected from infrastructure, oil and gas, mining, railways, and defence sectors also the attraction of Electric Vehicles will provide a boost in the industry.

The IPO is attractively priced, however, there are many listed and well-reputed players in the industry also the issue is purely OFS based. Thus, we assign an "AVOID" rating to the IPO.