IPO opens on March 19 and closes on March 21, 2018. The fresh issue
of 9.1 million shares along with the offer for sale (OFS) of 6.4 mn shares is
aimed at raising Rs 5 billion from the primary market.
About the company, Sandhar Technologies is
engaged in the business of designing and manufacturing a diverse range of
automotive components, parts and systems which are focused on safety and
security systems of vehicles.
The company manufactures its products from 31 manufacturing
facilities across eight states in India, two manufacturing facilities in Spain,
and one manufacturing facility in Mexico. This apart, it also has an overseas
assembly and packaging centre located in Poland and a R&D centre located in
Gurugram, Haryana.
The company's customer profile consists of 79 Indian and global
original equipment manufacturers (OEMs) across various segments and global
automotive component suppliers such as Autoliv, Bosch, and CTS
Pros: Sandhar Technologies is the leader in the two-wheeler
locking systems market, and the commercial vehicle rear view market in India and one of the two largest manufacturers of
operator cabins in India, along with being the largest player in the excavator
cabins market .
The company has a diversified
product portfolio. It presently manufactures 21 categories of products such as
lock assemblies, mirror assemblies, operator cabins for off-highway vehicles,
aluminium spools, spindles, and hubs. It also manufactures other product
categories including wheel assemblies, handle bar assemblies, brake panel
assemblies, sheet metal components and painted parts such as door handles,
panels for televisions, and cabinets for air conditioners.
The company has long-standing
and growing relationships with Indian and global OEM customers which include some
leading companies such as Ashok Leyland, Honda Cars, Doosan Bobcat, Escorts,
Hero, Komatsu, TAFE, Tata Motors, TVS, and Volvo. It has also grown its client
base over the last few years to include OEMs such as Caterpillar, CTS, Hyundai
Construction, International Tractors, JCB, Kobelco, Mahindra & Mahindra,
and SML Isuzu.
Cons : . High client concentration... Sandhar depends on
OEMs and a limited number of customers for a significant portion of its
revenues. The top two customers of the company constituted more than 50% of its
consolidated revenues during FY17. Any loss of a major customer could pose a significant
threat to the company and also adversely impact its financial condition.
The company also has high
segment concentration as it significantly relies on the two-wheeler OEMs. The
revenue from two-wheeler OEMs constituted around 58% and 54% of the total consolidated
revenue for the six months period ended September 30, 2017 and FY17,
respectively. Accordingly, any changes in the demand scenario for the
two-wheeler market could significantly impact on the company's revenues.
High debt on books... As of December 31, 2017, the total
amount outstanding by the company stood at Rs 5,158 million. While the company
intends to utilize around Rs 2,250 million of the fresh proceeds to repay its
outstanding debt, it will still be left with total outstanding borrowings of
around Rs 2,900 mn. The outstanding debt will require significant cash flows
and also have a negative impact on the net profit margins of the company going
forward.
The company is also exposed to the cyclicality risk the automobile
sector face.
Highly competitive market. The automotive component industry in which
the company operates is very competitive. There is pricing pressure from OEMs.
They pursue price reduction initiatives every year with the suppliers. Given
the intense competition, suppliers need to be cost effective without
compromising the quality of the product. This competitive nature of the
business could further put pressure on margins and profitability of the
company.
Valuations :
| Particulars (FY17) | Sandhar Technologies | Minda Corporation | Gabriel India | Fiem Industries |
| Return on Networth (%) | 13 | 11.4 | 19.7 | 9.9 |
| Net Profit Margin (%) | 2.4 | 2.1 | 4.9 | 2.3 |
| Debt / Equity Ratio (x) | 1.3 | 1 | 0 | 0.6 |
| Price to Earnings (P/E) Ratio (x) | 43.3 | 59.5 | 25 | 33.3 |
