Sandhar Technologies Ltd.’s initial public offering to raise close to Rs 512 crore opens today as the auto parts maker offers a profitable exit to a private equity investor and looks to raise funds to repay debt.
The company will sell 1.5 crore shares at Rs 327-332 apiece in the offer—a mix of fresh issue and an offer for sale. GTI Capital Beta will sell the remainder of its stake, making nearly fourfold returns. The private equity firm had on March 13 sold 25.34 lakh shares in an off-market transaction to a renowned investor Akash Bhansali for Rs 317.66 apiece.
- Share sale by existing investors: Rs 212.5 crore
- Fresh issue: Rs 300 crore. (Rs 225 crore to repay debt and Rs 75 crore for general corporate purposes.
Sandhar Technologies makes two-wheeler locking systems and rear-view mirrors for commercial vehicles among 21 product categories, also including wheel assembly, sheet metal and aluminium components.
The company has 31 facilities across eight states in India, two in Spain and one in Mexico. In addition, it’s commissioning another five plants in India.
It counts 79 Indian and global original equipment makers as its clients, including Hero Motocorp Ltd., TVS Motor Company Ltd., Bosch Ltd., Eicher Motors Ltd. and Honda Motor Company Ltd.
The company has exposure to Europe with nearly 12 percent of its revenue coming from that region.
- Sandhar Technologies net worth, after issuing new shares, would stand at Rs 628 crore, translating into a book value of Rs 104 per share.
- Its revenue rose at an annualised rate of 9 percent in four years through March 2017, while net profit grew at 6 percent.
- For the first half ended September, it reported a revenue and net profit stood at Rs 989 crore and Rs 34 crore, respectively.
- Earnings before interest, tax and depreciation and amortisation grew at a CAGR of 8 percent, while Ebitda margin expanded by 100 basis points in the last five years to 9 percent.
- For the first half ended September, Ebitda and Ebitda margin stood at Rs 102 crore and 10.3 percent, respectively.
- The company has a debt of close to Rs 354 crore, which would fall after it replays Rs 116 crore from the proceeds of the IPO.
- The company has invested more than Rs 600 crore into its business in the last five years.
Minda Corporation Ltd. and FIEM Industries Ltd. are among the listed rivals of Sandhar Technologies.
Sandhar Tech’s total debt-to-equity is the highest among peers. It would come down to 0.4 times after listing.
Its return ratios were lower than that of its peers on an annualised basis for the financial year 2017-18.
Annualised earnings per share, after issuing new shares, works out to Rs 11.4. At the upper end of the price band, shares will trade at 29.2 times its earnings, according to BloombergQuint’s calculations.
After the fresh issue, public shareholding in the company will be 30 percent.
- Expensive valuations, low-quality business, volatile past performance, high customer concentration and unconvincing story.
- Recommends ‘Avoid’
- Sandhar has consistently maintained its profitability in last five years and EBITDA margin at 9 percent due to strong operations and focus on profitable customers.
- Future valuation upgrades will be dependent on a strong balance sheet, free cash flow and quality of earnings improvement.
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- The auto component segment in India has witnessed significant re-rating.
- Advises ‘Subscribe’ in view of new growth opportunities, expected reduction in debt and reasonable valuation.
- Sandhar is continuously diversifying its portfolio and expanding its customer base by offering high value-added products and focusing on exports.
- Valuations lower compared to its closest peer Minda Corporation. Has a better return on equity and reasonable valuations.
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