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Sansera Engineering IPO opens next week, check grey market premium; should you subscribe? Check experts’ views

Sansera Engineering IPOSansera Engineering is an auto ancillary company with 16 facilities (1 in Sweden and 15 in India).

Sansera Engineering’s Rs 1,283-crore IPO (initial public offering) is scheduled to open for subscription on 14 September 2021, in a price band of Rs 734-744 per share. In the primary market, Sansera Engineering shares were seen quoting at a premium of Rs 70, over the issue price. On Friday, Sansera Engineering shares were trading at Rs 814 apiece, a premium of neaely 10 per cent in the grey market, according to the people who deal in unlisted shares of the companies. The company could join other listed peers such as Endurance Technologies, Minda Industries, Sundram Fasteners, Suprajit Engineering, Bharat Forge, Motherson Sumi Systems, and Mahindra CIE Automotive on the stock exchanges.

Sansera Engineering is an auto ancillary company with 16 facilities (1 in Sweden and 15 in India). It is a manufacturer of complex and critical precision engineered components across automotive and non-automotive sectors. In Automotive, it makes connecting rods, rocker arms, etc for 2W, PV and CV verticals. In Non-Automotive, it supplies to aerospace, off-road, agriculture and other segments. The company derives its major revenue from components related to the Internal combustion engine of a car.

Analysts say that as more and more EVs start to come, engines will be replaced by electric motors and components will change drastically. “While the company says they can pivot their business model, it remains to be seen how they will adapt to the change. This is a classic example of a company that will undergo major disruption. In terms of pricing, at the upper band, valuations are 2.4x Price to sales and 36.2x Price to earnings. The price is expensive given better ancillaries that trade at 1x Price to sales or below,” Aditya Kondawar, Founder, COO, JST Investments, told Financial Express Online.

In the passenger vehicle vertical, Sansera Engineering has relationships spanning more than 30 years with Maruti Suzuki, over 10 years with Stellantis N.V. (formerly Fiat Chrysler Automobiles), a leading European passenger vehicle OEM and over 10 years with one of the leading North American passenger vehicle OEM.

Sansera is an engineering-led integrated manufacturer of complex and critical precision engineered components. The company is mainly focused in automotive segment deriving 88.45% revenue from it. Analysts say that the client as well as product portfolio both seems to be concentrated which is bit concerning as almost 59% revenues comes from top five clients. “On the operational front, growth seems to be moderate. At the upper band of the offer, the issue is priced at 35.42x PE which again seems to be moderate as compared to its peers. It would be keen to watch how the company adapts to EV revolution going ahead,” Abhay Doshi, Founder, UnlistedArena.com, dealing in Pre-IPO & Unlisted Shares, told Financial Express Online.

Analysts at Axis Capital have not given any rating to the Sansera Engineering IPO. The brokerage firm noted that customers’ demand for higher performance and top-quality products is growing. In response to this, Sansera has placed a strong emphasis on continually improving their design and engineering capabilities so that they can focus
on providing high value added and technology-driven components, which will present them with opportunities to capture shifts in customer preferences as well as evolving regulatory requirements. It also added that Sansera Engineering has able to deliver a RoCE of 15.11%, 12.88% and 19.36% for Fiscals 2021, 2020 and 2019, respectively

Analysts at JM Financail Services noted that Sansera has a well diversified business model. It’s financial performance has outperformed the industry trends, and with industry leading metrics. According to the brokerage firm, the key risk factors include company’s dependency on third parties for the transportation and timely delivery of their products to customers. The company depends on third parties with whom they do not have long-term supply contracts for the supply of raw materials. A loss of suppliers or interruptions in the delivery of raw materials or volatility in the prices of raw materials on which they rely may have a material adverse effect on their business and results of operations. Moreover, the company is exposed to risks associated with foreign exchange rate fluctuations.

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