Sandhar Techno IPO review (Apply)

Sandhar Technologies Ltd. (STL) is a customer centric component supplier primarily catering to automotive OEMs and largely focused on safety and security systems of vehicles with a pan India presence and a growing international footprint. STL is the leader in the two-wheeler locking systems market, and the commercial vehicle rear view market in India, and are 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. Company's business involves designing and manufacturing a diverse range of automotive components, parts and systems, driven by technology, process, people and governance. STL's long-standing relationship with its major customers has been one of the most significant factors contributing to growth. Its customer portfolio consists of 79 Indian and global OEMs across various segments, some of them are Honda, Hero, Bajaj, TVS, Suzuki, Royal Enfield, Tata Motors, Ashok Leyland, Mahindra & Mahindra, Volvo etc. In addition to the above OEM customers, it also has relationships with global automotive component suppliers such as Autoliv, Bosch, and CTS, to whom it supplies various products.

Presently, STL manufactures 21 categories of products, including such product categories that are manufactured through its Subsidiaries and Joint Ventures, which cater to different industry segments. Its portfolio comprises various 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. 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. Currently STL manufactures products from 31 manufacturing facilities across eight states in India, two manufacturing facilities in Spain, and one manufacturing facility in Mexico. Further, it is in the process of commissioning five manufacturing facilities in India. Before the end of this calendar year it will have total 40 manufacturing facilities globally.

To part finance repayment/pre-payment of certain debts, working capital and general corpus fund needs, STL is coming out with a maiden IPO of 15436145 shares (approx.) comprising of fresh equity issue of 9036145 shares (approx.) and offer for sale of 6400000 shares via book building route with a price band of Rs. 327 – Rs. 332 to mobilize Rs. 504.76 cr. – Rs. 512.48 cr. based on lower and upper price bands. Issue opens for subscription on 19.03.18 and will close on 21.03.18. Minimum application is to be made for xx shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. BRLMs to this offer are ICICI Securities Ltd. and Axis Capital Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue. Its entire equity since incorporation is issued at par. It did a buy back (of 4472582 shares having FV of Rs. 2 per share) in November 2011 at Rs. 81.08 per share and issued rights shares (4285714 shares having FV of Rs. 2) in August 2014 at Rs. 77 per share. It has also issued bonus shares in the ratio of 1 for 1 in April 1999, 1 for 3 in August 2007, 11 for 10 in April 2010 and 4 for 1 in August 2015. Average cost of acquisition of shares by the promoters is Rs. 6.81 per share. Average cost of acquisition of shares by the selling stakeholder i.e. GTI Capital Beta Pvt. Ltd. is Rs. 84 per share. Post issue, its current paid up equity capital of Rs. 51.15 cr. will stand enhanced to Rs. 60.19 cr.



On performance front, STL has (on a consolidated basis) posted turnover/net profits of Rs.1268.89 cr. / Rs. 33.24 cr. (FY14), Rs. 1487.34 cr. / Rs. 38.40 cr. (FY15), Rs. 1517.89 cr. / Rs. 33.75 cr. (FY16) and Rs. 1633.53 cr. / Rs. 39.19 cr. (FY17). For first half of the current fiscal, it has earned net profit of Rs. 34.23 cr. on a turnover of Rs. 990.60 cr. Due to higher spending of borrowed funds (Rs. 635 crore) between FY14 till Sept. 2017 for expansion it posted static bottom lines for all these years. It has started yielding rewards of expansion done as indicated by H1 results of this fiscal. Despite all odds, it has posted a CAGR of 9% in revenue and 19.8% in PAT margins for FY13 to FY17.

For last three fiscals, it has posted an average EPS of Rs. 7.26 and an average RoNW of 13.04%. Issue is priced at a P/BV of 5.13 based on its NAV of Rs. 64.65 per share as on 30.09.17. It has posted inconsistent bottom line despite surging top line from FY14 to FY17. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 29 plus against industry average of 35. Reduction in high cost debt with IPO funds will improve its bottom line further in coming years. As per offer documents it has shown Minda Corp, Suprajit Engg., Gabriel India, JBM Auto, Minda Ind. and Fiem Ind as its peer that are currently trading at a P/E of around 60, 44, 22, 53, 80 and 30 respectively (as on 12.03.18). Thus issue pricing appears reasonable.

On BRLM's front, two merchant bankers associated with this issue have handled 51 public issues in the past three years out of which 16 issues closed below their offer price on listing dates.