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Bengaluru based auto component manufacturer Sansera Engineering Rs 1,282.98 crore IPO (initial public offering) is set to hit the street tomorrow, September 14 making it the 41st IPO of the current calendar year. The three-day offer will close on September 16. The price band for the issue has been fixed at Rs 734-744 per share having a face value of Rs 2 per share. An investor can bid for a minimum of 20 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,880 at the higher end of the price band. A retail investor can at max apply for 13 lots or 260 shares for Rs 1,93,440.

The Rs 1,282.98 crore public offer is a pure offer for sale (OFS) of 17,244,328 shares by its existing shareholders and promoters. Existing investors including Client Ebene, CVCIGP II Employees Ebene, and promoters including S Sekhar Vasan, Unni Rajagopal K, F R Singhvi, and D Devaraj will be offering shares in the OFS.

50% of the total offer is reserved for qualified institutional buyers, while 35% for retail investors, and the rest 15% for non-institutional buyers.

Grey market chatter

Ahead of the IPO, shares of Sansera Engineering were quoting at Rs 814 per share implying a premium of Rs 70 or 9.41%.

Sansera is an engineering-led integrated manufacturer of complex and critical precision engineered components. The company is mainly focused on the automotive segment deriving 88.45% revenue from it.

“Client as well as product portfolio both seems to be concentrated which is a bit concerning as almost 59% revenues come from top five clients. On the operational front, growth seems to be moderate. At the upper band of the offer, the issue is priced at 35.42x PE which again seems to be moderate as compared to its peers. It would be keen to watch how the company adapts to EV revolution going ahead,” said Abhay Doshi of Unlisted Arena.

Brokerage view

Most brokerages have a subscribe rating on the issue as the company has a strong product portfolio, advanced manufacturing capabilities and robust track record. Here is what they have to say

BP Equities | Rating: Subscribe

Sansera Engineering is one of the top 10 global suppliers of connecting rods within the Light Vehicle segment and Commercial Vehicle segment for CY 2020. The company has strong relationships with respected Indian and Global OEM’s. They have a well-diversified portfolio of segments, products, customers and geography. On the valuation front, the issue is priced at P/E (price to equity) of 36.2x based on FY21 earnings, diluted equity shares and upper price band which is fairly priced when compared to its listed industry peers (i.e, Endurance Technologies-43.3x, Minda Industries-91.6x, Sundram Fasteners-50.4x, Suprajit Engineering-30.7x and Motherson Sumi-64.1x)

Choice Broking | Rating: Subscribe

Sansera Engineering’s business witnessed marked recovery from the impact of Covid led complete lockdown in H1FY21. Revenue grew by 37% YoY to Rs 910 crore H2FY21 (Second half 2021). Margin trend also remained at a satisfactory level. The company also reported EBIDTA (earnings before interest depreciation tax and amortization) margin at 17.6% and NPM (net profit margin) at 7.1% in FY21 compared to peer average of ~14% and 7%. RoE (return on equity) stood at 12.5% in FY21 which is expected to improve with expansion in revenue growth.

At the higher price band of Rs 744, the issue is valued at a P/E of 34.8x on an FY21 EPS (earning per share) basis which is in line with peer avg. trailing P/E of 34x. Strong revenue growth and healthy EBIDTA margin over 15% to boost profitability in the coming future.

Marwadi Shares & Finance | Rating: Subscribe

Considering the FY-21 adjusted EPS of Rs.21.02 on the post-issue basis, the company is going to list at a P/E of 35.40 with a market cap of Rs 3,822.5 crore while its peers namely Endurance Technologies and Minda Industries are trading at a P/E of 33.56 and 56.63 respectively. The company is a leading supplier of precision engineered components that are gaining market share across automotive and non-automotive sectors and is available at a reasonable valuation as compared to its peers.

Dilip Davda – Independent Expert | Rating: Apply

On prima facie issue appears reasonably priced, considering its status and enjoyed preference with leading auto giants, they are poised for bright prospects ahead with good orders on hand. The original plan for an IPO of Rs 1400 crore. with the same size of float with a NAV (net asset value) of Rs 127 is now changed to IPO for Rs 1,283 crore with a NAV of Rs 166 plus. Thus, the company has taken an investor-friendly gesture. Investors may consider investment for the medium to long term.

ICICI Direct | Rating: Unrated

Sansera Engineering is among top 10 global suppliers of connecting rods for light vehicles (2.3% CY20 global market share, up from 0.9% in CY15) and CVs (3% CY20 global market share vs. 0.9% in CY15). In India, it is the largest supplier of connecting rods, rocker arms and gear shifter forks to 2-W OEMs and the largest supplier of connecting rods and rocker arms to PV OEMs. Going forward, the company believes it will benefit from the trend of OEMs increasingly outsourcing not just forged precision components but the entire forging and machining operations of these components as well as consolidating their suppliers.

The company clocked EBITDA margins of 17.6% in FY21 with a return ratio of 10-12%. On the balance sheet front, as of FY21, debt to equity is at 0.6x. In terms of valuation, it is priced at ~35x P/E on FY21 EPS (Rs 21/share) at the upper end of the price band i.e., Rs 744.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)