March 16, 2018
IPO Review
ICICI Securities Ltd | Retail Equity Research
Diversified ancillary company…
Sandhar Technologies (STL) is a diversified (21 categories of products)
component supplier primarily catering to automotive OEMs. The company
largely focuses on safety & security systems of vehicles with a pan-India
presence. STL is a leader in 1) 2-W locking systems market & 2) CV rear view
market in India. In terms of product wise revenue mix as of FY17, locks
account for 23% of its revenue, mirror assembly 13%, wheel assembly 11%,
sheet metal 13%, aluminium comps 17% & others 24% of its revenue. In
terms of segment mix, 2-W accounts for ~55% of its revenue, off-highway for
~9% and 4-W (PV + CV) while other segments account for remaining ~36%
of its revenue. Geography wise, India accounts for ~85% of its revenue while
the remaining 15% is from European market. In FY13-17, revenue, EBITDA,
PAT registered CAGR of 9%, 12%, 20%, respectively. In the past, the
company has maintained stable operating margin at ~9%. Its net debt to
equity has been ~1.3x while return ratios, RoE & RoCE are both >13%.
Key investment rationale
Vast product portfolio + long-standing & growing OEM relationships
STL manufactures 21 categories of products & caters to different automotive
segments like 2-W, PV, CV, off-highway vehicles and tractors, as well as non-
automotive segments including medical & electrical equipment. Through its
six joint ventures, STL also manufactures products like high precision press
parts, insert moulded contact plates, AVN panels and switches. It
manufactures products from 29 manufacturing facilities across eight states in
India, two manufacturing facilities in Spain and one manufacturing facility in
Mexico. The company has a long-standing relationship with some of its major
OEMs and is one of the most significant factors contributing to its growth. Its
customer portfolio consists of 79 Indian and global OEMs (HMCL, TVS, Royal
Enfield, Suzuki, UML, Honda, Tata Motors, Ashok Leyland, SML Isuzu, JCB,
Caterpillar, Bosch, Autoliv, CTS and others) across various segments.
Key business strategy
STL is committed to increasing its market share across their product verticals
& customers spend per vehicle. It is diversifying product offerings, customer
base & geographical footprint. Some of its key business strategies are:
1) increasing wallet share from existing customer (higher content per
vehicle); 2) expansion of its product portfolio & customer base; 3) inorganic
growth through strategic acquisition; 4) ensure efficiency & cost optimisation.
Key Risk & Concerns
Some of the major risks for STL are 1) slowdown in the overall automotive
space, 2) failure to identify & understand evolving industry trends &
preference, 3) customer concentration risk and 4) unfavourable input price &
currency movement that may impact its prospects.
Priced at PE of 51x FY17 diluted EPS (at upper price band of | 332/share)
STL has a diversified portfolio vis-à-vis some of its peers. Further, comparing
with some of the listed entities, STL (at upper price band of | 332/share) is
available at PE of 51x on FY17 diluted EPS of | 6.5 (vs. some of its peers that
are trading in the range of 25x-50x) & P/BV of ~5.6x book value of
| 58.9/share (compared to other peers available in the range of ~3x to ~12x).
Sandhar Technologies
Price band | 327-332
Rating matrix
Rating : Unrated
Issue Details
Issue Details
Issue Opens 19-Mar-18
Issue Closes 21-Mar-18
Price Band (|) 327-332
Bid Multiples (no of shares) 45.0
No. of Shares on Offer (crore) 1.5
Issue Size* (| crore) 512.5
QIB (%) 50.0
Non-Institutional (%) 15.0
Retail (%) 35.0
*Assuming issue price of |332
Objects of issue
The object of the issue 1) proceeds of fresh issue would be used
towards repayment or prepayment of debt; 2) offer for sale - GTI
capital will sell its stake and; 3) General corporate expense
Shareholding Pattern
Pre-Offer Post-Offer
Promoters & Promoter Group 82.5 70.1
Public 17.5 29.9
*Assuming issue price of |332
Financial Summary
| crore FY13 FY14 FY15 FY16 FY17
Total Revenues 1159.9 1265 1482 1513 1627
EBITDA 93.1 116 139 141 146
EBITDA Margins 8.0 9.2 9.4 9.3 9.0
PAT 19.0 33 38 33 39
EPS (Diluted) 3.2 5.5 6.4 5.6 6.5
Valuation Summary (at |332; upper price band)
FY13 FY14 FY15 FY16 FY17
P/E 104.9 60.4 52.2 59.7 51.0
EV/EBITDA 23.8 19.5 16.5 16.4 16.4
P/BV 11.1 9.6 7.7 7.3 6.6
Research Analyst
Nishit Zota
Vidrum Mehta
Page 2 ICICI Securities Ltd | Retail Equity Research
Exhibit 1: Consolidated Key Financials
| crore FY13 FY14 FY15 FY16 FY17
Total Revenues 1159.9 1265.0 1482.1 1513.2 1626.8
EBITDA 93.1 116.3 139.1 141.3 145.8
EBITDA Margins (%) 8.0 9.2 9.4 9.3 9.0
PAT 19.0 33.1 38.3 33.4 39.2
PAT Margins (%) 1.6 2.6 2.6 2.2 2.4
Diluted EPS 3.2 5.5 6.4 5.6 6.5
RoE 10.6 16.0 14.8 12.2 13.0
RoCE 15.2 16.9 16.3 15.4 13.4
Source: RHP, ICICIdirect.com Research
About the Company
Sandhar Technologies (STL) commenced operations as a supplier to Hero
(formerly Hero Honda Motors) for sheet metal components on October 1987.
The company is promoted by first-generation entrepreneur, Jayant Davar, Co-
Chairman & Managing Director, who has 30 years of experience in the OEM
component manufacturing industry. As of October 31, 2017, STL had a total
work force of 7,744 individuals comprising 2,363 employees & 5,381
individuals engaged on a contractual basis. The company has various
subsidiaries – in Barcelona, Poland, Mexico while it also has joint ventures -
Indo tooling (JV with JBM Auto for stamping tools), Sandhar Han Sung (JV
with Han Sung for high precision press parts), Jinyoung Sandhar (JV with
Jinyoung Electro-Mechanics for AVN & switches assemblies), Sandhar
Daewha (JV with Daewha Fuel Pump for fuel pumps & oil/air filters), Sandhar
Amkin (JV with Amkin group for manufacture of Helmets) and others.
Exhibit 2: Sandhar Technologies – Various business division, subsidiaries and Joint Ventures
Source: RHP, Presentation, ICICIdirect.com Research
Page 3 ICICI Securities Ltd | Retail Equity Research
Exhibit 3: Sandhar Technologies share (stake in various subsidiaries & JVs)
Source: RHP, Presentation, ICICIdirect.com Research
STL is a customer centric component supplier primarily catering to
automotive OEMs. The company focuses on safety and security systems of
vehicles with a pan-India presence and growing international footprint. STL is
a leader in 1) the 2-W locking systems market & 2) the commercial vehicle
rear view market in India. The company is one of the two largest companies
catering to the commercial vehicle locking systems market and the two-
wheeler rear view market in India. STL is one of the two largest
manufacturers of operator cabins in India, along with being the largest player
in the excavator cabins market.
The company manufactures 21 categories of products and caters to different
industry segments. STL’s portfolio comprises various categories of products
including safety and security systems such as lock assemblies, mirror
assemblies, operator cabins for off-highway vehicles, aluminium spools,
spindles and hubs. The other product categories include wheel assemblies,
handle bar assemblies, brake panel assemblies, sheet metal components
such as fuel filler caps, fuel cock assembly, step pillions, tools, dies, moulds,
other aluminium components, crane and tractor parts, plastic and painted
parts such as door handles (inner and outer), panels for televisions, and
cabinets for air conditioners. In terms of revenue mix as of FY17, locks
account for 23% of its revenue, mirror assembly 13%, wheel assembly 11%,
sheet metal 13%, aluminium comps 17% and others 24% of its revenue.
Geography wise, India accounts for ~85% of its revenue while the remaining
15% is from the European market. In terms of segment mix, 2-W accounts for
~55% of its revenue, off-highway accounts for ~9% of revenue and the
remaining of ~36% is from PV, CV and other segments. As of FY17, OEM
sales accounted for 75.1% of its revenue while revenue from its top five
customers constituted 67.2%. STL manufactures products from 29
manufacturing facilities across eight states in India, two manufacturing
facilities in Spain and one manufacturing facility in Mexico. The company has
a long-standing relationship with some of its major customers and is one of
the most significant factors contributing to its growth. STL’s customer
portfolio consists of 79 Indian and global OEMs (HMCL, TVS, Royal Enfield,
Suzuki, UML, Honda, Tata Motors, Ashok Leyland, SML Isuzu, JCB,
Caterpillar, Bosch, Autoliv, CTS and others) across various segments.
Page 4 ICICI Securities Ltd | Retail Equity Research
Exhibit 4: Sandhar’s business evolution
Source: RHP, Presentation, ICICIdirect.com Research
STL’s various division, products, customers and manufacturing facilities are:
Automotive Division
Under the automotive division, STL manufacture products based on its own
technology, or technology absorbed over a period of time pursuant to
technical collaborations with international technical collaborators including
Honda Lock and JEM Techno.
Product line – STL’s line of products under the automotive division
includes locking systems, rear view mirrors systems, auto relays,
switches, hinges and latches for two-wheeler and four-wheeler OEMs,
and door handles for four-wheeler OEM
Manufacturing facilities - Products under the automotive division are
manufactured at six manufacturing facilities of which three are in
Gurugram and one each in Bengaluru, Haridwar and Pune
Key customers – Automotive division caters to clients like Ashok
Leyland, Hero, Royal Enfield, SML Isuzu and others
Component division
The components division is a part of its vertically integrated operations and
forms part of its overall strategy of being self-reliant with respect to key
materials and processes required for products manufactured by its
automotive division.
Product line – Its line of products under this division includes sheet
metal stampings and tubular components, zinc and aluminium high
pressure die cast components such as wheel hubs, spools, spindles,
sprockets and plastic injection moulding components
Manufacturing facilities - Products under this division are
manufactured at six manufacturing facilities. Of these facilities, two
each are in Bawal and Gurugram with one each in Bengaluru and
Pune
Key customers – The division caters to clients like CTS, Hero, Royal
Enfield and TVS
Automatch division
Under the automach division, STL has modern production processes and
manufacturing technologies for wheel forming, tri-nickel chrome plating and
assembly machines. The company is among the top three players in the 2-W
steel wheels’ market in India
Page 5 ICICI Securities Ltd | Retail Equity Research
Product line – STL’s line of products under this division includes
wheel rims and wheel assemblies, handle bars, clutch and brake
panels and fender assemblies
Manufacturing facilities - Products under this division are
manufactured at six manufacturing facilities in Bengaluru, Chennai,
Hosur, Mysuru, Oragadam (Chennai) and Nalagarh
Key customers – The division caters to clients like include Hero, Royal
Enfield, Suzuki and TVS
Cabins and fabrication division
Under the cabins and fabrication division, STL caters to the off-highway
vehicles segment. This has been achieved by acquiring Mag Engineering in
FY13 and the cabin business of Arkay Fabsteel in FY15
Product line – STL’s line of products under this division includes
operator cabins, canopies, housings, panels, switchboards, control
cabinets and other high precision sheet metal components for back
hoe loaders, excavators, wheel loaders, cranes and tractors
Manufacturing facilities - Products under this division are
manufactured in four facilities of which two are in Bengaluru and one
each in Pune and Jaipur
Key customers – The division caters to clients like Atlas Copco,
Caterpillar, Doosan Bobcat, JCB, Kobelco, Komatsu, LeeBoy India,
Potain India, TAFE, and Tata Hitachi
HSCI division
Under the HSCI division, STL predominantly cater to Honda Cars. The
company has a 30-year-old relationship with Honda Cars. In 1987, the
company entered into a technical assistance arrangement for supply of 2-W
locks to Honda Lock, which progressed further into a technical collaboration
for 4-W lock assemblies, mirror assemblies and door handles in 1996.
Product line – STL’s line of products under this division includes lock
assemblies, door handles, mirror assemblies and painted products for
passenger vehicles as well as painted products for two-wheelers
Manufacturing facilities - Products under this division are
manufactured at Gurugram and Pathredi, Alwar
Key customers – The division caters to Honda
Some key subsidiaries & joint ventures -
Sandhar Technologies Barcelona, SL
In FY08, STL acquired the business of TECFISA, Spain, which was primarily
engaged in the business of aluminium die of small parts and mould design,
and is named Sandhar Technologies Barcelona, SL (STBSL). It has further
three wholly-owned subsidiaries, ST Mexico, ST Poland and Breniar Projects.
The company caters to some of its key customers including Bosch, Autoliv
and other global auto component manufacturers.
Sandhar Tooling
Sandhar Tooling was incorporated in 2002 as a joint venture between STL
and Steady Stream. The JV largely caters to OEMs while the manufacturing
facility is in Manesar.
Sandhar Strategic Systems
Sandhar Strategic Systems was incorporated on September 9, 2016 as an
MSME for carrying out manufacturing activities in, inter alia, the defence and
aerospace sector. The company is yet to commence its operations.
Page 6 ICICI Securities Ltd | Retail Equity Research
Indo Toolings
Indo Tooling is a joint venture between STL & JBM Auto. Indo Toolings
primarily undertakes commercial tooling activities. STL holds 50% of the
equity share capital of Indo Toolings. The remainder is held by JBM Auto.
Indo Toolings operates under an operation, maintenance and management
agreement entered into with Pithampur Auto Cluster. The company’s key
customers include commercial vehicle OEMs. Its manufacturing facility is in
Indore and Bhopal.
Sandhar Han Sung
Sandhar Han Sung is a joint venture between STL and Han Sung. Sandhar
Han Sung primarily undertakes the manufacture of high precision press parts,
insert moulded contact plates and switches. STL holds 50% of the equity
capital of Sandhar Han Sung. The remainder is held by Han Sung. The key
customers of Sandhar Han Sung include a major electrical equipment
manufacturer and a South Korean automotive component supplier. The
manufacturing facility is in Gurugram and Oragadam.
Jinyoung Sandhar Mechatronics (JSM)
Jinyoung Sandhar Mechatronics is a joint venture between STL and Jinyoung
Electro-Mechanics. JSM primarily undertakes the assembly of AVN panels,
and switches. STL holds 50% of JSM’s equity share capital. The remainder is
held by Jinyoung Electro-Mechanics. A key customer of JSM includes a
South Korean automotive components manufacturer, which supplies to the
only South Korean OEM in the Indian auto industry. The manufacturing
facility operated by JSM is located at Oragadam, Chennai.
Sandhar Daewha
Sandhar Daewha is a joint venture between STL and Daewha Fuel Pump.
Sandhar Daewha had been set up to undertake the manufacture and
assembly of oil fuel modules, fuel filters, starter motors, and wiper blades.
STL holds 50% of Sandhar Daewha’s equity share capital. The remainder is
held by Daewha Fuel Pump.
Sandhar Amkin
Sandhar Amkin is a joint venture between STL and the Amkin Group. Sandhar
Amkin has been set up to undertake the manufacture of safety helmets and
other headgears for 2-W. STL holds 50% of Sandhar Amkin’s equity share
capital. The remainder is held by the Amkin Group.
Sandhar Ecco-Green Energy
Sandhar Ecco-Green Energy is a joint venture between STL, ECCO Green
Energy, DMRG, and Tarun Agrawal. Sandhar Ecco-Green Energy primarily
undertakes solar power installation engineering project contracts for captive
use by the company. STL holds 50% of Sandhar Ecco-Green Energy’s equity
share capital. The remainder is held by ECCO Green Energy, DMRG, and
Tarun Agrawal.
Page 7 ICICI Securities Ltd | Retail Equity Research
Exhibit 5: STL – segment wise number & list of OEMs.
Source: RHP, Presentation, ICICIdirect.com Research
Exhibit 6: STLs – Segment and customer wise product offerings
Source: RHP, Presentation, ICICIdirect.com Research
Page 8 ICICI Securities Ltd | Retail Equity Research
Exhibit 7: STL’s– Product category wise peers
Source: RHP, Presentation, ICICIdirect.com Research
Investment Rationale
Long-standing, growing relationships with major OEMs
STL has long-standing relationships with 79 Indian & global OEM customers,
which include some leading companies such as Ashok Leyland, Doosan
Bobcat, Hero, Honda Cars, Komatsu, Scania, TAFE, Tata Motors, TVS, UM
Lohia and Volvo. It has grown its client base over the last few years to include
OEMs such as Caterpillar, CTS, Hyundai Construction, International Tractors,
JCB, Kobelco, SML Isuzu and others. STL’s consistent delivery of quality and
cost competitive products over the years, irrespective of the size and scale of
demand, has helped it in receiving orders from multiple OEMs and locations
globally. Its relationship with its customers provides it with the opportunity to
cross sell multiple products to them.
Diversified product portfolio
STL commenced its business by manufacturing sheet metal components
which accounted for 100% of its revenue. However, the revenue contribution
from the same is at 13.8% as of FY17. This is mainly after STL diversified into
various products and across segments. At present, STL manufactures 21
categories of products with varieties, which cater to different automotive
segments such as 2-W, PV, CV, off-highway vehicles and tractors, as well as
non-automotive segments including medical and electrical equipment. Its
current portfolio comprises various categories of products including safety &
security systems such as lock assemblies, mirror assemblies, operator cabins
for off-highway vehicles, aluminium spools, spindles, and hubs. The company
also manufactures other product categories including wheel assemblies,
handle bar assemblies, brake panel assemblies, sheet metal components
such as fuel filler caps, fuel cock assembly, step pillions, tools, dies, moulds,
other aluminium components, crane and tractor parts, plastic and painted
parts such as door handles (inner and outer), panels for televisions, and
cabinets for air conditioners. Through its six joint ventures, Sandhar also
manufactures products like high precision press parts, insert moulded contact
plates, AVN panels and switches.
Production facilities close to customers based on philosophy ‘Be Glocal’
STL’s strategy has been to invest in locations close to its OEM customers’
plants, which has been a key factor in aiding a strong relationship with OEM
customers. Its manufacturing facilities at Gurugram, Chennai & Bengaluru are
close to plants of Hero, Royal Enfield & TVS, respectively. Further, the
company also has manufacturing facilities in Mexico & Spain, and an
assembly and packaging centre in Poland, to cater to customers in Western
Europe, Eastern Europe and Nafta markets. It has expanded its operations
from four manufacturing facilities in India as on FY05 to 31 facilities in India,
two manufacturing facilities in Spain and one in Mexico.
Page 9 ICICI Securities Ltd | Retail Equity Research
Vertical, horizontal integration of its operations from product designing to
supply solutions
STL is present across levels of the automotive component critical value chain.
It provides products & services that range from product design and
prototyping to tool manufacturing, assembly, as well as production of
integrated components. As part of its vertical integration strategy, the
company has established multiple processes like zinc die casting, aluminium
die-casting, plastic injection moulding and an in-house robotic paint shop that
are used in manufacturing and assembly of locking systems. Its integration
strategies reduce the dependence on third party suppliers for a number of
products & services. The company has various in-house R&D activities that
primarily work on development of new products, designing, prototyping, and
product upgrades. STL also has six JVs that manufacture products like high
precision press parts, insert moulded contact plates, AVN panels and
switches. The company also has a technical collaboration with Honda Lock
and JEM Technologies.
Financial performance
Over FY13-17, revenue, EBITDA and PAT have registered a CAGR of 9%,
12%, 20%, respectively. In the past, the company has maintained operating
margin at ~9%. On the balance sheet front, its net debt to equity has been
around 1.3x while its return ratios, RoE & RoCE both were >13%.
Exhibit 8: Revenue trend
1159.9
1265.0
1482.1 1513.2
1626.8
0
200
400
600
800
1000
1200
1400
1600
1800
FY13 FY14 FY15 FY16 FY17
| crore
Total Revenues
Source: RHP, ICICIdirect.com Research
Exhibit 9: Profitability trend
19.0
33.1
38.3
33.4
39.2
0
5
10
15
20
25
30
35
40
45
FY13 FY14 FY15 FY16 FY17
| crore
PAT
Source: RHP, ICICIdirect.com Research
Exhibit 10: EBITDA & PAT margins (%)
8.0
9.2 9.4 9.39.0
1.6
2.6 2.62.2 2.4
0
2
4
6
8
10
12
14
FY13 FY14 FY15 FY16 FY17
%
EBITDA Margins (%) PAT Margins (%)
Source: RHP, ICICIdirect.com Research
Exhibit 11: Return ratios (RoE & RoCE)
10.6
16.014.8
12.213.0
15.2
16.916.3 15.4
13.4
-2
2
6
10
14
18
22
FY13 FY14 FY15 FY16 FY17
%
RoE RoCE
Source: RHP, ICICIdirect.com Research
Page 10 ICICI Securities Ltd | Retail Equity Research
Exhibit 12: Net debt-equity
1.21.3
1.2 1.1
1.3
0.0
0.5
1.0
1.5
2.0
FY13 FY14 FY15 FY16 FY17
| crore
Net Debt/Equity
Source: RHP, ICICIdirect.com Research
Exhibit 13: Free cash flow
-24.4
-15.2-11.0
37.0
-13.7
-30
-20
-10
0
10
20
30
40
50
FY13 FY14 FY15 FY16 FY17
| crore
FCF
Source: RHP, ICICIdirect.com Research
Exhibit 14: Product wise revenue mix (%) – FY17
23
13
11
13
17
27
Locks Mirror Assembly Wheel Assembly
Sheet Metal Aluminium Comp Others
Source: RHP, ICICIdirect.com Research
Exhibit 15: Segment wise revenue mix (%) – FY17
895
146
586
2-W OHT 4-W (PV + CV)
Source: RHP, ICICIdirect.com Research
Exhibit 16: Geography wise revenue mix
13141401
875
204
233
116
0
200
400
600
800
1000
1200
1400
1600
1800
FY16 FY17 6MFY18
| crore
India Europe
Source: RHP, Presentation, ICICIdirect.com Research
Page 11 ICICI Securities Ltd | Retail Equity Research
Key business strategy
STL is committed to increasing its market share across its product verticals &
customers spend per vehicle. The company is diversifying product offerings,
customer base and geographical footprint. The following are some of its key
business strategies:
Expansion of product portfolio through investment in new products, business
with high growth potential
The company plans to leverage current trends in the automotive sector such
as increasing focus on safety, fuel efficiency, comfort, customisation,
entertainment and communication, as well as auto electronics to develop
products that meet its OEM customers’ requirements in these areas. The
company is exploring & testing the feasibility of various technology driven
and high margin products such as smart keys, auto relays, switches, USB
chargers, parking assistant systems, fuel filters, fuel modules, fuel senders,
starter motors and shark-finned antennas, among others in partnership with
its OEM customers. STL aims to capture dominant market share in each of its
new products and at the same time, also intends to continuously upgrade its
existing products and customise them according to the needs of its OEM
customers.
Expand customer base
The company continues to focus on increasing its customer base by
marketing existing products to new customers, together with developing new
products. It has increased its customer base in the past through new products
and segments as well as through acquisitions. The number of OEMs
customer base has grown from 58 in FY13 to 79 in FY17.
Increase wallet share from existing OEM customers
STL focuses on increasing its contribution per vehicle (i.e. the number and
value of components supplied by STL in vehicles produced by its OEM
customers) and also works closely with its OEM customers to develop a
broader portfolio of products, which meet their requirements. Over the years,
STL has been able to increase its customers’ contribution to its revenue. For
instance – its revenue from Royal Enfield was | 18.74 crore in FY13, which
increased to | 69.74 crore in FY17. Further, its revenue from Honda Cars was
at | 46.82 crore in FY13, which increased to | 130.5 crore in FY17. STL
intends to continue focus on increasing its contribution per vehicle and work
closely with OEM customers to develop a broader portfolio of products,
which meet their requirements.
Inorganic growth through strategic acquisitions
The company has a successful track record of acquiring assets and ensuring
two-way transfer of best practices. STL evaluate potential acquisitions on
several criteria including access to technology, new customer access,
new/adjacent product portfolio, new market access, size of the acquisition
and profitability. The company endeavours to target segments where it can
leverage its existing expertise and competencies to build new capabilities.
Ensure efficiency, cost optimisation & enhance innovation/design capabilities
The company constantly endeavours to reduce the costs of its operations
while ensuring the quality of products. STL already has central planning,
marketing and raw material procurement teams that helps company to
reduce cost and achieve operational efficiencies and economies of scale.
Further ensuring cost rationalisation in its manufacturing processes continues
to be one of its key strategies. The company intends to focus on adopting
strategies to establish a standardised platform across its business units for
the processes, hardware and software infrastructure and workforce.
Page 12 ICICI Securities Ltd | Retail Equity Research
Exhibit 17: Sandhar Technologies – Key Business strategies
Source: RHP, Presentation, ICICIdirect.com Research
Exhibit 18: Demand Drives vs. Sandhar preparedness
Source: RHP, Presentation, ICICIdirect.com Research
Page 13 ICICI Securities Ltd | Retail Equity Research
Key Risk & Concerns
Slowdown in overall demand environment (automotive space)
STL’s performance is largely dependent on the automotive space and any
slowdown in the space could directly impact its performance. Though the
company has a presence across segments, it has a higher dependence on the
2-W segment, which accounts for ~54.6% of its revenue as of FY17. In the
event of a decline in 2-W demand, or any other developments that make the
sale of components in the 2-W market less economically beneficial, the same
can adversely affect its business, results of operations and prospects.
Failure to identify, understand evolving industry trends & preference
The changes in regulatory/industry requirement or in competitive
technologies may render few of its product obsolete or less attractive. The
ability to anticipate changes in technology and regulatory standards and
successfully develop and introduce new and enhanced products on a timely
basis is a significant factor.
High customer concentration risk
STL has higher customer concentration risk, which could impact its financial
performance. As of FY17, OEM sales accounted for 75.1% of its revenue
while revenue from its top five customers constituted 67.2%. The company
does not have any firm commitment for supplying component to its
customers. Thus, it has to rely on purchase orders that may be amended or
cancelled prior to finalisation. Also, loss of any of its key customers or a
significant reduction in demand from its customers may have an adverse
effect on their business.
Unable to manage its raw material requirement
STL is highly depended on zinc, sheet metal parts and aluminium that
account for 41.5% of its revenue. It sources its glass requirement from one of
its major suppliers, which accounts for 90% of its glass requirement. If STL is
unable to manage its raw material procurement (price, availability & quality) it
may impact its production and business. Also, the purchase of goods
(bought-out parts) constituted ~28.3% of its overall raw material cost.
Adverse currency movement may impact its performance
STL’s consolidated results of operations are in rupee while its subsidiaries
report their financial results in their respective local currencies of France,
Spain, Mexico and others. Hence, there could be an impact on consolidation
of its financials primarily due to currency movement. As of FY17, revenue
from Europe and other location (outside India) were at | 232.8 crore (~14.3%
of its total revenue). Thus, exchange rate fluctuations may have an adverse
effect on its reported revenues and financial results.
Page 14 ICICI Securities Ltd | Retail Equity Research
Objects of issue
The object of the issue 1) proceeds of fresh issue (| 300 crore) would be used
towards repayment or prepayment of debt (around | 225 crore); 2) offer for
sale (64 lakh equity share at upper price band of | 332/share will result into
overall value of | 212.50 crore) by GTI Capital Beta (currently holds 89.34 lakh
share or 17.47% stake in the company with average cost of acquisition at |
84/share) and; 3) general corporate expense. Thus, the overall offer size (at
upper price band of | 332/share) will be around | 512.5 crore.
Valuations
STL has a diversified product portfolio vis-à-vis its peers. Comparing with
some of the listed entity, which are into similar kind of business, STL (at
upper price band of | 332/share) is available at 51x on FY17 diluted EPS of
| 6.5 compared to some of its other ancillary players that trade in the range of
25-50x their FY17 EPS. On the book value front, STL will be available (at
upper price band of | 332/share) at ~5.6x on FY17 book value of | 58.9/share
compared to some of its other peers available in the range of ~3-12x.
Page 15 ICICI Securities Ltd | Retail Equity Research
Exhibit 19: Profit & Loss statement
Income statement (| crore) FY13 FY14 FY15 FY16 FY17 6MFY18
Gross Revenue 1,259.9 1,369.8 1,606.2 1,643.7 1,764.9 1,029.0
Less Excise duty 100.0 104.8 124.1 130.5 138.1 39.6
Total Income 1,159.9 1,265.0 1,482.1 1,513.2 1,626.8 989.4
Raw Material expenses 719.5 773.2 907.7 901.3 951.1 591.9
Employee benefits 156.2 160.2 184.3 201.8 235.4 130.1
Other expenses 191.3 215.3 251.0 268.8 294.5 165.1
Total Expenditure 1,066.9 1,148.7 1,342.9 1,371.9 1,481.0 887.0
EBITDA 93.1 116.3 139.1 141.3 145.8 102.4
Other Income 3.9 4.2 5.7 5.2 7.2 1.5
Financial charges 35.6 39.4 41.0 42.4 42.7 20.1
Depreciation 35.9 39.4 52.4 55.2 60.3 33.7
PBT 25.4 41.8 51.4 49.0 49.9 50.1
Extraordinary items - - - (3.7) (0.5) -
Taxation 6.2 8.5 13.0 11.5 9.9 15.5
Reported PAT 19.2 33.2 38.4 33.7 39.5 34.6
Share of Minority Interest 0.1 0.1 0.1 0.3 0.4 0.3
PAT 19.0 33.1 38.3 33.4 39.2 34.2
Source: RHP, ICICIdirect.com Research
Exhibit 20: Balance Sheet
Balance Sheet (| crore) FY13 FY14 FY15 FY16 FY17 6MFY18
Equity Share Capital 9.4 9.4 10.2 51.2 51.2 51.2
Reserves & Surplus 169.9 197.7 249.0 222.5 250.2 279.6
Total Shareholders Funds 179.3 207.1 259.2 273.6 301.3 330.7
Share application money - 1.5
Minority Interest 1.3 1.4 1.6 1.8 2.2 2.6
Long term borrowings 132.8 126.2 166.8 194.5 209.2 191.8
Deferred tax liability (net) 14.0 14.5 10.6 8.0 8.3 8.2
Other long term liability - - - 5.7 5.1 10.4
Long term provisions 0.1 0.2 - 0.6 0.8 1.0
Total Non-current liabilities 147.0 140.9 177.4 208.8 223.5 211.4
Short term borrowings 89.5 148.3 142.3 124.7 183.3 210.4
Trade Payables 162.3 183.7 224.9 225.0 236.2 315.3
Other current liabilities 86.4 99.1 97.9 121.9 113.8 141.4
Short term provisions 4.6 8.1 12.9 9.5 13.8 23.6
Total current liabilities 342.8 439.2 478.0 481.1 547.1 690.7
Total Liabilities 670.4 790.2 916.1 965.4 1,074.1 1,235.4
Fixed Assets
Tangible assets 377.0 411.5 460.7 514.3 583.9 612.5
Intangible assets 4.6 6.9 15.5 13.5 12.0 10.9
Capital work-in-progress 20.5 26.3 40.5 55.2 29.2 69.7
Total 402.1 444.7 516.7 583.0 625.1 693.1
Goodwill 1.2 0.7 0.0 0.7 0.5 0.5
Deferred tax assets 0.4 0.0 0.3 0.6 1.0 1.3
Long term loans & advances 17.8 29.3 16.2 16.3 15.7 23.1
Non-current Investments 3.0 3.0 3.0 3.1 3.1 3.0
Other non-current assets 2.1 0.0 0.2 - 0.7 0.3
Total non-current assets 426.6 477.8 536.4 603.7 646.2 721.3
Current Investment 3.7 0.0 - 1.0 1.0 2.5
Inventories 116.6 129.9 157.2 159.8 167.1 193.5
Trade receivables 98.0 151.4 187.6 166.7 209.3 264.3
Cash and bank balances 6.3 2.7 7.3 6.0 7.3 6.1
Short-term loans and advances 18.4 28.2 25.2 27.5 30.3 45.4
Other current assets 0.7 0.2 2.4 0.7 12.9 2.3
Total Current assets 243.7 312.4 379.7 361.7 428.0 514.1
Total Assets 670.4 790.2 916.1 965.4 1,074.1 1,235.4
Source: RHP, ICICIdirect.com Research
Page 16 ICICI Securities Ltd | Retail Equity Research
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
Page 17 ICICI Securities Ltd | Retail Equity Research
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