IPO Note | Auto Ancillary

Mar 15, 2018

Sandhar Technologies Limited

sue Open: Mar 19, 2018

Issue Close: Mar 21, 2018

Sandhar Technologies Ltd. is one of the leading auto component suppliers for safety and

Issue Details

se curity systems such as l ock assemblies, mirror asse mblies, operator cabins for 2W, PV and

Face Value: `10

off-highway vehicles. Currently, 2W, P V & CV and off hi ghway contri bute ~58%, 30%, and

Present Eq. Paid up Capital: `51.2cr

9% respectively to its revenue. The company has

21 product categories and

manufacturing facilities in India, 2 in Spai n, 1 in Mexico and 5 are in the process of getting

Fresh issue: `300cr

c ommissione d in India.

Post Eq. Paid up Capital: `60.2cr

Diversified product portfolio: Sandhar’s portfolio compri ses various categories of products

Issue size (amount): `512.5cr

including safety and security syste ms such as l ock assemblies, mirror assemblies, operator

cabins for off-highway vehicle s, aluminium spool s, spindle s and hubs. Further, Snadhar also

Price Band: `327-332

manufactures other product s including wheel asse mblies, handle bar asse mblies, brake

Lot Size: 45 shares and in multiple thereafter

panel assemblies, sheet metal c omponents such as fuel filler caps, fuel cock assembly, etc.

Post-issue implied mkt. cap: *`1,969cr -

Relationships with major OEMs in India and overseas: Sandhar has a relationship with 79

**`1,999cr

OEMs across India, eastern and western Europe and NAFTA regions. Moreover, Sandhar

Promoters holding Pre-Issue: 82.5%

supplies various product s to global automotive component suppliers such as Autoliv, Bosch

Promoters holding Post-Issue: 70.1%

and CTS. The company’s prominent customers are Hero, T VS, Royal Enfield, Honda etc.

*Calculated on lower price band

Strong focus on R&D: Sandhar has a modern and advanced technology through in-house

** Calculated on upper price band

research and development activities, joint ventures and technical collaborations. The

Book Building

company’s R&D team of 31 engineers are currently w orking on the development of new

QIBs

50% of issue

products, de signing, prototyping and product upgrades.

Non-Institutional

15% of issue

Manufacturi ng locations in close proxi mity to automobile hubs: Sandhar has

Retail

35% of issue

manufacturing facilities in India, 2 in Spain, 1 in Mexico and 5 manufacturing facilities are in

the process of commi ssioning. All the plants are located near the OEMs, which could cater to

Post Issue Shareholding Pattern

the demand easily.

Promoters

70.1%

Outlook & Valuation: Sandhar is continuously diversifying its product portfolio and expanding

Others

29.9%

its customer base by offering high value added products and focusing on exports. In terms of

valuations, the pre-issue P/E works out to 25x 1HF Y2018 annualized earni ngs (at the upper

end of the i ssue price band), w hich is lower compared to its cl ose st peer Minda Corporation

(trading at 30x its 1HFY2018 annualized earnings). He nce, considering the above positive

factors, better ROE profile and re asonable valuations, we recommend S UBSCRIBE rating.

Key Financials

Y/E March (` cr)

FY2014

FY2015

FY2016

FY2017

1HFY18

Net Sales

1,265

1,482

1,513

1,627

989

% chg

9.1

17.2

2.1

7.5

Net Profit

% chg

72.6

15.6

(12.6)

17.2

OPM (%)

9.2

9.4

9.3

9.0

10.3

EPS (`)

6.5

7.5

6.5

7.7

6.7

P/E (x)

51.3

44.4

50.8

43.3

Amarjeet S Maurya

P/BV (x)

8.2

6.6

6.2

5.6

+022 39357600, Extn: 6831

RoE (%)

16.0

14.8

12.3

13.0

[email protected]

RoCE (%)

16.0

15.3

14.5

12.3

EV/Sales (x)

1.6

1.3

EV/EBITDA (x)

16.9

14.4

14.2

14.3

Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end

of the price band

Please refer to important disclosures at the end of this report

Sandhar Technologies Limited | IPO Note

Company background

Sandhar Technologies Ltd. is one of the leading auto component suppliers for

safety and security systems such as lock assemblies, mirror assemblies, operator

cabins for 2W, PV and off-highway vehicles. Currently, 2W, PV & CV and off

highway contribute ~58%, 30%, and 9% respectively to its revenue. The company

has 21 product categories and 31 manufacturing facilities in India, 2 in Spain, 1 in

Mexico and 5 are in the process of getting commissioned in India. Going ahead,

Sandhar would focus more on offering high value added products like rear-

parking sensors, ABS/CBS, Tyre-pressure monitor, etc. coupled with expansion in

the customer base and increase the wallet share from the existing OEM customers.

Company is also working towards auto fuels and emission norms and expanding

exports portfolio.

Exhibit 1: Business Structure

Source: Company, Angel Research

Mar 15, 2018

Sandhar Technologies Limited | IPO Note

Issue details

Sandhar’s Technologies Ltd. IPO is a mix of offer-for-sale and fresh issue of

shares. The fresh issue would constitute of shares worth `300cr, with offer-for-sale

of 0.64cr shares. The company will dilute 15% of its post-offer paid-up equity

share capital.

Exhibit 2: Pre and post IPO shareholding pattern

Pre-issue

Post-issue

No. of Shares

Promoter

4,22,20,059

82.5%

4,22,20,059

70.1%

Public

89,34,505

17.5%

1,79,70,650

29.9%

Total

5,11,54,564 100.0%

6,01,90,709

100.0%

Source: Source: RHP, Note: Calculated on upper price band

Objectives of the Offer

 Repayment or prepayment in full, or in part of certain loans availed by the

company (`225cr)

 General corporate purposes

Outlook & Valuation

The company is continuously diversifying its product portfolio and expanding its

customer base by offering high value added products and focusing on exports. In terms

of valuations, the pre-issue P/E works out to 25x 1HFY2018 annualized earnings (at the

upper end of the issue price band), which is lower compared to its closest peer Minda

Corporation (trading at 30x its 1HFY2018 annualized earnings). Hence, considering

the above positive factors, better ROE profile and reasonable valuations, we

recommend SUBSCRIBE on the issue.

Key Risks

 Slowdown in 2W/PV/Commercial vehicle industries could impact the

overall sales volume of the company

 Increase in competition from other players can impact the company’s

business

Mar 15, 2018

Sandhar Technologies Limited | IPO Note

Income Statement

Y/E March (` cr)

FY2014

FY2015

FY2016

FY2017

1HFY18

Total operating income

1,265

1,482

1,513

1,627

989

% chg

9.1

17.2

2.1

7.5

Total Expenditure

1,149

1,343

1,372

1,481

887

Raw Material

773

908

901

951

592

Personnel

160

184

202

235

130

Others Expenses

215

251

269

295

165

EBITDA

116

139

141

146

102

% chg

25.0

19.6

1.6

3.2

(% of Net Sales)

9.2

9.4

9.3

9.0

10.3

Depreciation& Amortisation

EBIT

% chg

34.6

12.8

(0.7)

(% of Net Sales)

6.1

5.9

5.7

5.3

6.9

Interest & other Charges

Other Income

(% of PBT)

9.3

10.3

13.5

2.4

Exceptional Items

Recurring PBT

% chg

64.3

23.1

(12.1)

9.3

Tax

(% of PBT)

20.4

25.3

25.4

20.0

31.0

PAT (reported)

% chg

72.6

15.6

(12.6)

17.2

(% of Net Sales)

2.6

2.2

2.4

3.5

Basic EPS (`)

6.5

7.5

6.5

7.7

6.7

Fully Diluted EPS (`)

6.5

7.5

6.5

7.7

6.7

% chg

73.7

15.6

(12.6)

17.2

Source: Company, Angel Research

Mar 15, 2018

Sandhar Technologies Limited | IPO Note

Exhibit 3: Balance Sheet

Y/E March (` cr)

FY2014

FY2015

FY2016

FY2017

1HFY18

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

198

249

222

250

280

Shareholders’ Funds

207

259

274

301

331

Total Loans

275

309

319

393

402

Deferred Tax Liability

Total Liabilities

498

580

603

704

744

APPLICATION OF FUNDS

Net Block

418

476

528

596

623

Capital Work-in-Progress

Investments

Current Assets

342

396

377

443

535

Inventories

130

157

160

167

194

Sundry De btors

151

188

167

209

264

Cash

Loans & Advances

Other Assets

Current liabilities

291

336

363

370

492

Net Current Assets

Deferred Tax Asset

Total Assets

498

580

603

704

744

Source: Company, Angel Research

Mar 15, 2018

Sandhar Technologies Limited | IPO Note

Exhibit 4: Cash Flow Statement

Y/E March (` cr)

FY2014 FY2015 FY2016 FY2017 1HFY18

Profit before tax

Depreciation

Change in Working Capital

(41)

(32)

(44)

Interest / Dividend (Net)

Direct taxes paid

(7)

(12)

(16)

(9)

(6)

Others

(1)

(7)

C ash Flow from Operati ons

100

144

111

(Inc.)/ Dec. in Fixed Assets

(90)

(111)

(107)

(97)

(Inc.)/ Dec. in Investments

(2)

C ash Flow from Inve sting

(82)

(113)

(106)

(105)

(98)

Issue of Equity

Inc./(Dec.) in loans

Dividend Pai d (Incl. Tax)

(11)

(22)

(9)

(6)

Interest / Dividend (Net)

(39)

(41)

(42)

(21)

C ash Flow from Financing

(2)

(41)

(16)

Cash flow on acc. of Foreign currency

(5)

(0)

Inc./(Dec.) in Cash

(9)

(4)

(3)

Ope ning Cash bal ances

Closing Cash balances

Source: Company, Angel Research

Mar 15, 2018

Sandhar Technologies Limited | IPO Note

Exhibit 5: Key Ratios

Y/E March

FY2014

FY2015

FY2016

FY2017

Valuati on Ratio (x)

P/E (on FDEPS)

51.3

44.4

50.8

43.3

P/CEPS

23.4

18.7

19.1

17.0

P/BV

8.2

6.6

6.2

5.6

Dividend yield (%)

0.0

EV/Sales

1.6

1.3

EV/EBITDA

16.9

14.4

14.2

14.3

EV / Total Assets

3.9

3.4

3.3

3.0

Per Share Data (Rs)

EPS (Basic)

6.5

7.5

6.5

7.7

EPS (fully diluted)

6.5

7.5

6.5

7.7

Cash EPS

14.2

17.7

17.4

19.5

Book Value

40.5

50.7

53.5

58.9

Returns (%)

ROCE

16.0

15.3

14.5

12.3

Angel ROIC (Pre-tax)

16.2

15.6

14.8

12.5

ROE

16.0

14.8

12.3

13.0

Turnover rati os (x)

Inventory / S ales (days)

Receivables (days)

Payables (days)

Working capital cycle (ex-cash) (days)

Source: Company, Angel Research

Mar 15, 2018

Sandhar Technologies Limited | IPO Note

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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