Sandhar Technologies IPO
IPO Rating - 48 (Invest with limited exposure)**
About the Issue
The IPO of Sandhar Technologies Limited will remain open for subscription from March 19-21, 2018. The issue comprises of fresh issue of equity shares of Rs. 10 aggregating up to Rs. 300 crore and Offer for sale of up to 64,00,000 equity shares. The IPO size amounts to Rs. 509.28 crore. The issue price is in the range of Rs. 327-332 per equity share having a face value of Rs. 10 each. The minimum lot size consists of 45 shares. The company will get listed on both BSE and NSE. The book running managers of the issue are ICICI Securities Limited and Axis Capital Limited.
Purpose of the Issue
Company proposes to utilise the net proceeds from the fresh issue towards:
- 75 per cent will be used for repayment or prepayment in full, or in part of certain loans availed by the company
- Remaining 25 per cent will be used for general corporate purpose
While the company will not receive any proceeds from the OFS as all the proceeds will go to the selling shareholders.
Company Background
Sandhar Technologies is a component supplier mainly catering to automotive OEMs and primarily focused on safety and security systems of vehicles. The company has pan India presence and a rising international footprint. The company is one of the two largest companies catering to the commercial vehicle locking systems market and the two-wheeler rear view market in India.
It is also one of the two largest manufacturers of operator cabins in India, along with being the largest player in the excavator cabins market. Its business involves designing and manufacturing a range of automotive components, parts and systems, driven by technology, process, people and governance.
Company’s customer portfolio consists of 79 Indian and global OEMs across various segments. This includes Hero, TVS, Royal Enfield, Suzuki, Tata Motors, Ashok Leyland, SML Isuzu, Escorts, Caterpillar, JCB, Komatsu, TAFE, Volvo, etc. In addition to these OEM customers, its global customer portfolio includes Autoliv, Bosch, and CTS.
Following is the chart of revenue from top five OEMs during the period 6MFY18
Presently, it manufactures 21 categories of products comprises of safety and security systems such as lock assemblies, mirror assemblies, operator cabins for off-highway vehicles, aluminium spools, spindles, and hubs. We also manufacture other product categories including wheel assemblies, handlebar assemblies, brake panel assemblies, sheet metal components such as fuel filler caps, fuel cock assembly, step pillions, tools, dies, moulds, other aluminium components, crane and tractor parts, plastic and painted parts such as door handles (inner and outer), panels for televisions, and cabinets for air conditioners.
Company manufactures these products at 31 manufacturing facilities across eight states in India, two manufacturing facilities in Spain and one manufacturing facility in Mexico. Further, it is in the process of commissioning five manufacturing facilities in India.
Financial Performance
On a consolidated basis, the revenue from operations for the company increased at 7 per cent CAGR over FY13-17 and its PAT grew at 15.6 per cent CAGR over the same period. The company’s revenue grew to Rs. 1,626.87 crore in FY17 from Rs. 1,513.22 crore in FY16, registering an increase of 8 per cent. Its EBITDA also grew from Rs 14.60 crore to Rs 15.25 crore in FY17, registering a moderate increase of 4 per cent. Its PAT jumped from Rs. 33.75 crore to Rs. 39.56 crore, registering jump of 17 per cent.
Valuation
For FY17 period, the company’s EPS stood at Rs. 7.66. Considering the upper price band of Rs. 332, the company’s P/E works out to 43x. We have considered the following peers for analysis.
| Company | Closing Price* | EPS (Rs.) | RONW (%) | P/E |
| Sandhar Tech | - | 7.66 | 13.01 | 43.3 |
| Minda Corporation | 185.20 | 4.59 | 14.76 | 40.88 |
| Minda Industries | 1166.55 | 21.17 | 23.11 | 55.34 |
| Suprajit Engineering | 281.65 | 8.77 | 23.82 | 32.12 |
| Gabriel India | 154.10 | 5.68 | 18.12 | 27.13 |
| JBM Auto | 417.50 | 15.91 | 15.70 | 26.24 |
| Fiem Industries | 842.95 | 26.30 | 7.82 | 32.05 |
(* Market Price as on March 6, 2018)
Company is looking slight expensive on the valuation front as its P/E is quite high compared to peers.
Our View
The company is among one of the two largest manufacturers of locking systems, rear view mirrors, operator cabins and excavator cabins. Diversified portfolio and in-house research and development coupled with long lasting and growing relationships with major OEMs augur well for the company's growth. Also, traction in two-wheeler industry (~80 per cent auto industry) with 5.3 per cent CAGR over FY12-17, along with 4 per cent growth in the passenger vehicles segment will help the company to grow further.
However, there are some risks associated with the same as the company depends on a limited number of customers for a significant portion of revenue. The loss of a major customer may affect its business.
Looking at the growth in the automobile industry coupled with company’s diversified portfolio and continuing client base, the company is a safe bet. Investors can subscribe to the IPO with limited exposure and for long-term perspective.
**40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment
To know further on rating click here