ICRA reaffirms rating of Sansera Engineering Limited

ICRA Limited after due consideration, has reaffirmed the long-term rating of [ICRA]AA- (pronounced ICRA double A minus) and short-term rating of [ICRA]A1+ (pronounced ICRA A one plus). The Outlook on the long-term rating is Stable.

The reaffirmation of the ratings considers the established position of Sansera Engineering Limited (Sansera / the company) in the precision forged and machined components space, catering primarily to automotive segment, which accounted for ~89.0% of the revenues in 9m FY2023. The ratings also continue to consider the promoters' experience of over 30 years in the auto industry and the increasing share of business with existing customers and the addition of new customers, which is likely to support revenues going forward.

On a consolidated basis, Sansera witnessed a revenue growth of 27.9% in FY2022 supported by recovery in domestic demand, healthy demand from export markets (34.7% growth in FY2022), price hikes received from the OEMs and increase in share of business from existing customers and new customer acquisitions done by the company. Despite the healthy revenue growth, the company experienced challenges related to rising raw material prices, higher employee costs, and a decline in operating margins at its Sweden facility, which led to a contraction of operating margin by 120 basis points to 17.2% in FY2022. During 9m FY2023, Sansera witnessed revenue growth of ~21.7%; however, the OPBDITA margin contracted by 50 basis points to 16.4% due to muted exports, a segment which typically generates higher margins. Despite these challenges, Sansera continues to outpace industry growth supported by its healthy geographical and customer diversification, expanding wallet share with existing customers, and a track record of adding new products and customers. Currently, Sansera derives ~78.8% of the revenue from engine and transmission components for Auto Internal Combustion Engine (ICE) segment and to mitigate the risk of impending EV transition, company is focusing to diversify more into Non-Automotive and Auto-Tech agnostic & xEV segment. The company has been able to secure orders from reputed customers in xEV segment and revenue contribution from xEV which increased to 3.3% in 9m FY2023 from 0.4% in FY2022. Currently, ~51% of the company's orderbook is derived from the Non-Automotive and Auto-Tech agnostic & xEV segment and out of the planned capex, majority will be allocated towards these segments which is expected to augur well for the company as the industry transitions increasingly to EV.

The rating strengths are partially offset by the customer concentration risk with the top five clients contributing to 52.4% of Sansera's revenues in 9m FY2023 (53.9% in FY2022 and 59.2% in FY2021) and the inherent cyclicality in the auto components industry. Although the company experienced robust revenue growth during FY2022, its OPBDITA margin contracted due to optical impact of higher raw material prices and employee expenses. During 9m FY2023, the company's international sales contracted by 6.8% on a YoY basis, with European sales declining by about 11.1% during the same period on the account of subdued performance in Sweden facility, energy crisis in Europe, recessionary fears and chip supply shortage to an extent. The movement of raw material prices and the recovery of higher margin export sales will be a key determinant of the company's margin trajectory going forward. The impending electrification of automotive industry is expected have a bearing on the company's revenues over the medium term, given that Sansera currently derives ~78.8% (9m FY2023) of its revenues from the engine and transmission components of the Auto ICE segment. While the transition to EV is expected to be very gradual in the PV segment, the threat is relatively higher in the 2w segment which currently accounts for ~45% of the company's revenues. However, the company's efforts to diversify more into Non-Automotive and Auto-Tech agnostic & xEV segment mitigate the risk to an extent and ~51% of the current orderbook of ~Rs. 1,500 crore is comprised of these segments. The company's debt levels have remained high with sizeable capability and capacity expansion over the years. Consequently, the company debt metrics also remain moderate with company's Net debt/ OPBDITA (excl. lease impact) at 1.6x and Net gearing (excl. lease impact) at 0.6x as on September 30, 2022.

The Stable outlook on the [ICRA]AA- rating reflects ICRA's opinion that Sansera will continue to benefit from its established customer relationships in both domestic and export markets, strong market position in the automotive industry, diversified geographical and segmental presence, its focus on increasing revenue from Auto-Tech agnostic & xEV and non-Automotive segment and the expected improvement in its financial profile with improving credit metrics and margins and adequate liquidity position.

Shares of Sansera Engineering Ltd was last trading in BSE at Rs. 751.05 as compared to the previous close of Rs. 750.15. The total number of shares traded during the day was 3749 in over 714 trades.

The stock hit an intraday high of Rs. 754.30 and intraday low of 736.60. The net turnover during the day was Rs. 2794216.00.

Source : Equity Bulls

Keywords

SanseraEngineering AutoPartsandEquipment INE953O01021 RatingUpdate