Sandhar Technologies IPO Note (Apply)

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Review By Rudra Shares & Stock Brokers Ltd on Mar 19, 2018

VALUATION

The company is a leader in the two-wheeler locking systems and one of the two largest companies catering to the commercial vehicle locking systems market and also one of the two largest manufacturers of Operator cabins in India. Company manufactures its products at 31 manufacturing facilities

Further, it is in the process of commissioning 5 manufacturing facilities in India. It also has 6 joint ventures.

Company is also working towards auto fuels and emission norms and expanding export portfolio. Taking into risk consideration, the company depends on a limited number of customers for a significant portion of revenue (67.2%). The loss of a major customer may affect its business. Further, On the upper price band of Rs 332 with EPS of Rs 7.7 for FY17, P/E worksout at 43.1x. In the first six months FY18 company shows a excellent financial results but still valuation looks slight expensive as its P/E is quite high. Therefore we recommend to SUBSCRIBE the IPO for long term listing benefits.

THE OFFER

• Issue Open:19 Mar 2018 to 21 Mar 2018
• Issue Type: Book Built Issue IPO
• Issue Size:

  Fresh Issue aggregating up to Rs 300 Cr

  Offer for Sale of 64,00,000 Equity Shares @ 10

• Face Value: Rs 10 per Equity Share
• Issue Price: Rs 327 - Rs 332 per Equity Share
• Market Lot: 45 Shares
• Minimum Order Quantity: 45 Shares
• Listing At: NSE, BSE

CAPITAL STRUCTURE

The share capital of Company is set forth below: - (Amount in Rs except share data)

Authorized Share Capital:-

68,000,000Equity Shares @10 Aggregate value 680,000,000,

200,000 Preference Shares @10 Aggregate value 20,000,000

Issued, subscribed and paid up capital before the Issue:-

51,154,564 Equity Shares @10 Aggregate value 511,545,640

Present Issue:-

• Fresh Issue aggregating up to Rs 300 Cr
• Offer for Sale of 64, 00,000 Equity Shares @ 10

OBJECT OF THE OFFER

The Offer comprises of the Fresh Issue and the Offer for Sale.

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale.

Fresh Issue

The Company proposes to utilize the Net Proceeds from the

Fresh Issue towards:

• Repayment or prepayment in full, or in part of certain loans availed by the Company. - Rs 225cr
• General corporate purposes.

COMPANY OVERVIEW

Sandhar Technologies involves designing and Manufacturing a range of automotive components, parts and systems, driven by technology, process, people and governance. The company is a leader in the two-wheeler locking systems market, and the commercial vehicle rear view market in India, and one of the two largest companies catering to the commercial vehicle locking systems market.

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.

Company’s customer portfolio consists of 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.

Company manufactures its products at 31 manufacturing facilities across 8 states in India, 2 manufacturing facilities in Spain and one manufacturing facility in Mexico. Further, it is in the process of commissioning 5 manufacturing facilities in India.

It also has 6 joint ventures with: a) JBM Auto, b) Han Sung, c) Jinyoung Electro Mechanics, d) DMRG and Tarun Agrawal, e) Daewha Fuel Pump and f) Amkin group. Through these JVs, Sandhar also produces products such as high Precision press parts; insert moulded contact plates, AVN panels and switches.

ROAD MAP AHEAD

Company objectives are to expand their market share and aim to accomplish this through the following strategies:

• Expansion of product portfolio through investment in new products and business with high growth potential.
• Expand customer base.
• Increase wallet share from existing OEM customers.
• Inorganic growth through strategic acquisitions.
• Ensure efficiency and cost optimization and enhance innovation and design capabilities

STRENGTHS

• Long-standing and growing relationships with major OEMs.
• Diversified product portfolio.
• Vertical and horizontal integration of operations from product designing to supply solutions.
• In-house research and development, design capability and technical collaborations.
• Experienced and strong management team backed by good governance standard.

FINANCIAL PERFORMANCE

Total Revenues stood Rs 990.6cr, Rs 1633.5cr, Rs 1517.9cr and Rs 1487.3cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PBT was Rs 50.1cr, Rs 49.5cr, Rs 45.2cr and Rs 51.4cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PAT was Rs 34.6cr, Rs 39.6cr, Rs 33.7cr and Rs 38.4cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

RISK FOR THE BUSINESS

• Company depends on a limited number of customers for a significant portion of revenues. The loss of a major customer or significant reduction in production and sales may adversely affect business.
• Companies significantly rely on the two-wheeler market and any adverse changes to the demand in the two wheeler market could adversely impact business.
• Company reliance on third parties for certain aspects of business, including raw material suppliers and transporters of raw materials, exposes company to certain risks.
• Companies do not have firm commitment supply agreements with its customers. If their customers choose not to source their requirements from company, company’s business and results of operations may be adversely affected.
• Company is subject to risks associated with companies’ overseas operations, which could negatively affect sales to customers in foreign countries.