IPO Analysis – Sansera Engineering Limited

IPO rating: Invest for long-term

About the issue:

Sansera Engineering Ltd is an integrated manufacturer of complex and high-quality precision components mainly for the automotive sector. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 2 per equity share. The issue size of the company is Rs 1,282.98 crore, with no fresh issue while the issue includes the sale of shares worth Rs 369.64 crore by existing investors, according to its red herring prospectus. 

The price band of the issue has been fixed at Rs 734 to Rs 744 per equity share. The IPO opening date is September 14, 2021, while it will close on September 16, 2021. It will be listed on the Exchanges on September 24, 2021. The IPO market lot size is 20 shares. A retail-individual investor can apply up to a maximum of 13 lots (260 shares or Rs 1,93,440). The net proceeds generated from the IPO will be utilised to carry out the Offer for Sale of up to 17,244,328 equity shares by the selling shareholders and to achieve the benefits of listing the equity shares on the stock exchange.

Sansera Engineering IPO Details:

About the company:

Incorporated in 1981, Sansera manufactures complex and critical precision engineered components and caters across automotive and non-automotive sectors. The company manufactures and supplies a wide range of precision forged and machined components and assemblies which are critical for the two-wheeler, passenger vehicle, and commercial vehicle verticals for the automotive sector. For the non-automotive sector, the company manufactures and supplies a wide range of precision components for aerospace, off-road, agriculture, and other segments. The company mostly supplies forged & machined products to OEM’s.

For FY’21, the Automotive sector contributed 88.45 per cent and non-automotive 11.45 per cent of the revenue. The company derives around 65 per cent of its revenue from India and the rest 35 per cent from other countries. The company is one of the major suppliers of connecting rods globally. The company has 15 manufacturing plants across India of which nine are in Bangalore.

Competitive strengths:

Leading supplier of complex and high-quality precision engineered components across automotive and non-automotive sectors which are poised to grow strongly.

A well-diversified portfolio of segments, products, customers, and geography.

Strong Engineering & Designing capabilities.

Strong relationships with respected Indian and Global OEM’s.

Strong financial performance.

Skilled and experienced management team.

Financials:

In FY21, the total revenue witnessed a YoY growth of 6.7 per cent. Even though the plants in India were often shut due to lockdown, the profit after tax showed a growth of nearly 37.5 per cent.

Recommendation:

The company is one of the top 10 global suppliers of connecting rods within the light vehicle and commercial vehicle segment. In India, it is the largest supplier of connecting rods, rocker arms and gear shifter forks to two-wheeler OEMs. It sold components across 69 product families during FY21 as against 51 during FY19. It supplies nine out of the top 10 two-wheeler OEMs in India including the likes of Bajaj Auto, Honda Motorcycles, Yamaha, etc. The top five OEMs contributed 59.21 per cent to revenues in FY21, which is a high concentration of client base. The company’s operations are highly influenced by the demand and performance of its top customers which is a key risk concern. Also, it does not have long term supply agreements with most of its customers. However, it has had a healthy relationship with its customers for over 20 years. In FY22, it plans to infuse capital expenditure of Rs 200 crore in India and Sweden primarily for capacity expansion. Due to the critical applications of its products, and stringent quality requirements of the customers, it is difficult for the new players to enter the industry. Considering the above factors, we recommend investing in the company’s IPO for the long term.