Investment Opportunity: Sansera Engineering – A Strong Buy with a Target Price of Rs 1133

Are you looking for an investment opportunity that promises strong growth potential? Look no further than Sansera Engineering (SEL). ICICI Securities has given a resounding “Buy” recommendation for SEL, setting a target price of Rs 1133. In this blog, we’ll dive into the reasons behind this recommendation and why Sansera Engineering is a stock you should consider adding to your portfolio.

Sansera Engineering: A Mid-Year Update

To provide you with a comprehensive overview of SEL’s prospects, we recently interacted with the management of Sansera Engineering to get a mid-year update on their business execution and outlook. Here are the key takeaways:

1. Impressive Export Growth

Sansera Engineering is on track to achieve approximately 40% growth in exports for the fiscal year 2024. This growth includes a remarkable 50% surge in the aerospace segment. The company’s dedication to expanding its international presence is paying off, making it a robust contender in the global market.

2. Thriving in the Two-Wheeler Segment

With supplies to renowned brands like Triumph and Harley-Davidson for their newly-launched indigenized models, Sansera Engineering is poised for significant revenue growth in the two-wheeler segment. The company is benefiting from the continuous premiumization of the overall two-wheeler market.

3. Strong Profit Margins

Sansera Engineering is on course to achieve an EBITDA margin (EBITDAM) of 17-18% in fiscal year 2024. This margin could potentially climb even higher in fiscal year 2025, primarily driven by the increasing proportion of exports and aerospace in its portfolio.

4. Impressive Return on Capital Employed (RoCE)

Despite capital expenditures of INR 2.8-3 billion per annum, Sansera Engineering is confident in achieving a pre-tax RoCE of approximately 20% by fiscal year 2025. This highlights the company’s efficient use of capital and its commitment to generating substantial returns for its investors.

Growth in the Domestic Two-Wheeler Space

While the two-wheeler industry is expected to grow by around 10% in fiscal year 2024, Sansera Engineering is set to outperform with an anticipated revenue growth of approximately 20% from its domestic internal combustion engine (ICE) two-wheeler components. This growth is driven by the execution of newly-launched models, including those for Triumph and Harley-Davidson.

Exports and Aerospace Expansion

As guided at the end of fiscal year 2023, Sansera Engineering is well on track to achieve its fiscal year 2024 target of approximately 40% revenue growth in exports, which will amount to over INR 6.5 billion. This impressive growth trajectory includes the aerospace segment, which is expected to increase its revenue from approximately INR 900 million in fiscal year 2023 to around INR 1.4 billion in fiscal year 2024. This expansion is underpinned by the recovery in semiconductor supplies and the execution of fresh orders.

Investment Opportunity

Sansera Engineering is clearly positioned for significant growth, both domestically and internationally. Its commitment to enhancing its product portfolio, expanding into new markets, and maintaining strong profit margins makes it an attractive investment opportunity.

ICICI Securities’ “Buy” recommendation with a target price of Rs 1133 further underscores the growth potential of Sansera Engineering. With its robust financial performance and strategic initiatives, Sansera Engineering is a stock to watch.

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