Sandhar Technologies Limited IPO Review

Sandhar Technologies LimitedSandhar Technologies Limited IPO comprises fresh issue of equity shares worth Rs. 300 crore and sale of scrips (OFS) of up to 64 lac equity shares by PE firm GTI. The Auto parts maker plans to use a portion of the net proceeds towards repayment of certain loan facilities and for other general corporate purposes.

Sandhar Technologies Limited  IPO Details
Issue Details Mon, March 19, 2018- Wed, Mar 21, 2018
Fresh Issue  of Rs.300 Crore
  + Offer for Sale of 64,000,000 Shares
Issue Size (Shares) 15,436,144 Equity Shares
Issue Size (Rs. Cr) Rs.  512 Cr
Price Band Rs.327 – 332
Bid Lot 45 Equity Shares 
Issue Structure :  
QIB 50% of the offer 
NIB 15% of the offer 
Retail 35% of offer -5,402,651 Shares- 179 Cr
BRLMs Axis Capital,  ICICI Securities
Registrar Link Intime India Pvt. Ltd.
About Sandhar Technologies Limited
    • Incorporated on October 19, 1987, Sandhar Technologies Limited commenced operations as a supplier to Hero (formerly Hero Honda Motors Limited) for sheet metal components.
    • Sandhar Technologies Limited manufactures products from 29 manufacturing facilities across eight states in India, two manufacturing facilities in Spain, and one manufacturing facility in Mexico. Sandhar Technologies Limited is in the process of commissioning eight manufacturing facilities in India.
    • Sandhar Technologies Limited manufactures 21 categories of products, including such product categories that are manufactured through its Subsidiaries and Joint Ventures, which cater to different industry segments.
    • The Company is promoted by a first-generation entrepreneur, Jayant Davar. 
Sandhar Technologies Limited: Financials:
Rs. In Crore
Particulars HY 18 FY17 FY16 FY15
Revenue from Operations (net) 989.41 1,626.87 1,513.22 1,482.05
Revenue Growth (%) 7.51% 2.10%
EBITDA as stated 103.56 152.47 145.98 144.44
EBITDA (%) 10.47% 9.37% 9.65% 9.75%
Profit Before Tax 50.1 49.45 45.22 51.43
Profit after Tax  34.57 39.56 33.75 38.4
NPM % 3.49% 2.43% 2.23% 2.59%
EPS (Rs.) 6.69 7.66 6.54 7.52
Share Capital 51.15 51.15 51.15 10.23
Reserves 279.57 250.18 222.48 248.97
Net worth 330.72 301.33 273.63 259.2
Long Term Borrowings 191.82 209.25 194.5 166.75
Short Term Borrowings 210.41 183.26 124.68 142.29
RONW(%) 10.35% 13.01% 12.23% 14.77%
Net Asset Value (Rs.) 64.65 58.91 53.49 50.67
Face Value 10
IPO Price 332
Post Issue Equity 60.19
EPS (Post IPO) 6.57
PE (post IPO)  50.51
CAGR Sales 3 Yrs 8.75%
CAGR Net Profit 3 Yrs 5.97%
Market Cap 1998.00 crore
Market cap / Sales 1.23
Sandhar Technologies Limited IPO: Rationale for Investment
  • Sandhar Technologies Limited is a customer centric Auto component supplier to automotive OEMs and focused on safety and security systems of vehicles with a pan India presence and a growing international footprint.
  • The Company is a leader in the two-wheeler locking systems market, and the commercial vehicle rear view market in India, and is one of the two largest companies catering to the commercial vehicle locking systems market, and the two-wheeler rear view market in India.
  • It is also one of the two largest manufacturers of operator cabins in India, along with being the largest player in the excavator cabins market. The company`s business involves designing and manufacturing a diverse range of automotive components, parts and systems, driven by technology, process, people and governance.
  • Sandhar Technologies  Portfolio comprises of Limited manufactures 21 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 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.
  • Sandhar Technologies Limited has an overseas assembly and packaging centre located in Poland. The research and development activities are undertaken at Gurugram, Haryana.
  • Sandhar Technologies Limited facilities are located in key auto-clusters in the northern, southern, and western parts of India, and most of the facilities are in close proximity to the plants of the OEM customers. Apart from allowing the  company to optimise delivery to its customers, the proximity of these facilities to the plants of the OEM customers also facilitates greater interaction with customers, thereby enabling the company to respond to their requirements in a timely manner.
  • Sandhar Technologies Limited is setting up 5 new units in India, which are likely to be commissioned over the next 6-8 months. Exports account for 14% of annual topline and two wheeler OEMs make up for bout 58% of the company’s revenues.
  • Sandhar Technologies has relationship with 79 OEMs across India,  Europe and NAFTA. Global automotive component suppliers such as Autoliv, Bosch and CTS are among its international clients.  Hero, TVS, Royal Enfield, Honda  are among its Indian clients.
Risk & Concerns:
  • There is a limited number of customers and higher dependency on OEM sales.
  • Company has a high amount of unsecured borrowings on a consolidated basis on account of borrowings of one of its Subsidiaries, ST Barcelona.
  • Any severe price changes in Zinc, aluminium, steel,  nickel, brass, copper, plastics and glass which are the major raw material for the company. could impact its profitability. 
Peer Comparison: 

A Comparison with Minda corporation, one of the peer of the company is depicted below:

Rs. In Crore
Sandhar  Minda Corporation 
Revenues (Fy17) 1,626.87 2,962.04
Net Profit 39.56 96.08
NPM 2.43% 3.24%
Equity 60.19 41.6
Face Value 10 2
Market / IPO Price 332 191.45
RONW 13.01% 14.76
EPS 6.57 4.62
PE 50.51 41.45
Market Cap 1998.31 3982.16
Market Cap/sales 1.23 1.34
Sandhar Technologies IPO: Assessment
  • Compared to its peer Minda Corporation, Sandhar Technologies Limited is priced at a higher PE.
  • Reduction in debt with IPO proceeds  will improve Sandhar Technologies Limited bottom line in coming years. 
  • PE firm GTI Capital which held 17.47% stake in the company since Dec 2012 is exiting 72% of its holding . The PE investor will continue to hold 4.21% stake in the company, post IPO.
  • Akash Bhansali of Enam picked up a stake of around 5% in Sandhar Technologies Ltd from GTI Capital, 
  • Sandhar Technologies Limited posted strong performance during first half of the current fiscal.
  • The diluted equity share capital of the company at upper price band of Rs 332 stands at Rs 60.19 crore of face value of Rs 10. This gives an EPS of Rs 6.5 for FY 2017. The P/E on FY 2017 earnings works out to 50.5
  • Due to steep valuation being demanded,  I do not intend to  apply in the Sandhar Technologies IPO even as the company seems quite promising and auto sector is expected to do well. There could be change in opinion only if there is good response to the Sandhar Technologies IPO. 

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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