07.08.2018
During Q1FY19, Sandhar reported strong financial performance. Its sales grew by 24.9% to Rs. 4.9b and PAT increased by 48.1% YoY to Rs. 219mn. Sandhar is among the top five diversified listed auto ancillary entities in India. We believe it is poised for robust business growth over next two years. We maintain our Sales and PAT estimates for FY19 and FY20 and reiterate our BUY rating on the stock with price target of Rs. 472 (PER of 18xFY20E earnings).
Impressive Q1FY19 Performance:
During Q1FY19, its sales grew by 24.9% to Rs. 4.9b, driven by strong volume growth across all its business segments and customers.
Its EBITDA margins however declined by 85bps to 10% on account of start-up cost in its 3 newly operational manufacturing plants. Without contribution from these 3 plants, overall EBITDA margins were up ~100bps.
PAT increased by 48.1% YoY to Rs. 219mn led by strong sales growth and 65% decline in interest cost.
Net Debt stand at Rs. 1.3bn ( D/E ratio of 0.2
Sandhar’s 2W Business set for Double Digit Growth (~59% of sales): Sandhar enjoys dominant share in automotive locks and mirrors in 2W OEM market in India. It supplies its products to Hero Motocorp, TVS Motors and Royal Enfield (~53% of Indian 2W industry). It has also started supplying its products to HMSI which is under ramp up stage. We believe its 2W business segment is poised for double digit growth over the next 2 years on account of (a) overall 2W industry growth in India (increasing youth population, easy financing and overall rural economy recovery) b) Sandhar’s shift towards introducing premium products (Smart locks, ORVM mirrors etc) resulting in increase in content per vehicle and c) its recent entry and ramp up in scooter segment.
Domestic 4W and Cabin Fabrication Business is on upswing (~18% of sales): Sandhar has been supplying auto components to Honda Cars since last 20 years. Over the last 4 years, its content per vehicle in Honda Cars has grown from 8K to 12K. Honda’s plan to introduce 6 new models and increasing its market share from 5% to 10% in India over the next 3-4 years augurs well for Sandhar. Sandhar has also set-up a new plant in Jaipur to supply operator cabin and fabrication components to JCB. The Company expects its cabin revenues to double to ~Rs. 4 bn in two years with new facility addition.
New 3 Plants to add ~Rs. 3bn Sales over next Two Years: Currently, Sandhar has 34 manufacturing units. It has recently commissioned 3 more plants in Q1FY19. These new plants (aluminum die casting and Operator cabin parts) have potential to generate ~Rs. 3bn sales over the next 2 years.
Rs. 2.8bn New Business acquisition: During Q1FY19, Sandhar has acquired Rs. 2.8bn new business across products and categories. Following are new order details.
Motorcycle and Scooter – Rs. 1.2bn
Car – Rs. 0.6bn
OHV – Rs. 0.8bn
Truck and Other –Rs. 0.2bn
Full impact of these orders is likely to be seen in FY20.
Growth + Operating Leverage + Financial leverage – Profit Set to Double: We estimate Sandhar’s PAT margins to expand from 3.7% to 5.9% over FY18-20E on account of a) 100bps EBITDA margin expansion (operating leverage and increasing contribution of higher profitable business) and b) Interest cost saving on account of debt repayment out of IPO proceeds. The company is set to more than double its profit from Rs. 662mn to Rs. 1.6bn over FY18-20E.
Maintain BUY: Our FY19E and FY20E Sales and PAT estimates for the company remain largely unchanged. Sandhar is among the top five diversified auto ancillary listed entities in India. We believe Sandhar has now entered into a high growth phase wherein its sales and PAT are expected to grow at 19.4% and 54.4% over FY18-20E respectively. Further we believe, new JVs will enable sustenance of growth beyond FY20E. We maintain our BUY rating with price target of Rs. 472 (PER of 18xFY20E).
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