Sandhar Technologies Ltd IPO - Should you subscribe?

Incorporated in October 1987, Delhi based Sandhar Technology Ltd has also queued up to garner money through IPO. Defense PSU Bharat Dynamics Ltd closed on March 15, 2018 received very sloppy response over its IPO. It was primarily because of previous PSU IPOs went flop especially General Insurance Corporation and a few good IPOs have lined up. It seems that public has lost interest in PSUs as can be seen from the subscription figures of BDL. It has hardly managed to subscribed by 1.29 times on last day leaving NII & Employee quota still unsubscribed.

Bandhan Bank Ltd IPO opened on March 15, 2018 and has done reasonably well on the first day. The valuation is on little higher side yet sentiments are very positive about that IPO. Another Defense PSU Hindustan Aeronautics Ltd and small time Nashik based construction company Karda Construction have opened on March 16, 2018 and their fate is yet to be decided.

Sandhar Technologies Ltd (STL) is opening on March 19, 2018 when HAL, Bandhan Bank and Karda Construction would still be open for subscription. All four companies operate altogether in different industries yet would be competitors during IPOs.

Sandhar Technologies Ltd - Overview

STL is a customer centric component supplier primarily catering to automotive OEMs (Original Equipment Manufacturers) and largely focused on safety and security systems of vehicles with a pan-India presence and a growing international footprint. Its business involves designing and manufacturing a diverse range of automotive components, parts and systems, driven by technology, process, people and governance.

Promoted by a first generation promoter, Jayant Davar, the company commenced operations as a supplier to Hero (Formerly Hero Honda Motors Ltd) for sheet metal components.  Today, its top-notch two wheelers manufactures key OEMs customers include Hero, TVS, Royal Enfield, Suzuki and UM Lohia. Passengers and commercial vehicle key OEM Customers include Honda Cars, TATA Motors, Ashok Leyland, Scania and SML Isuzu. Commercial vehicles - off highway vehicles and tractors key OEM customers include Atlas copco, Caterpillar, Doosan Bobcat, Hyundai Construction, International Tractors and many more and non-automotive key OEM include Forza Medi.

Presently, the company manufactures 21 categories of products, including such product categories that are manufactured through its Subsidiaries and Joint Ventures (Six subsidiaries and six joint ventures), which cater to different industry segments. The company manufactures its products from 29 manufacturing facilities across eight states in India, two manufacturing facilities in Spain, and one manufacturing facility in Mexico. Further, the company is in the process of commissioning eight manufacturing facilities in India.  This apart, the company also has an overseas assembly and packaging center located in Poland.

Issue details:

Objects of the offer:

Offer For Sale: The investor shareholder GTI Beta Pvt Ltd has put 8000000 share for sale under this arrangement. The company will not receive any proceeds from the offer for sale.
Fresh Issue : The Company proposes to utilize the Net Proceeds from the Fresh Issue towards:

▪ Repayment or prepayment in full, or in part of certain loans availed by our Company (Rs. 225 Crore); and

▪ General corporate purposes

The money received through Fresh Issue will not be going to be used for further expansion or capacity maximization. The company's debt equity ratio as on September 30, 2017 was 1.43 which seems little unfavorable. By repaying the debt, the ratio shall improve.

Revenue from operations and PAT: 

Its consolidated total revenue for Fiscals 2017, 2016 and 2015 was 1633.53 Crore, 1517.89 Crore, and 1487.34 Crore, respectively. Its consolidated restated profit after tax for Fiscals 2017, 2016 and 2015 was 39.56 Crore, 33.75 Crore and 38.40 Crore, respectively. Its consolidated total revenue and restated profit after tax grew at a CAGR of 8.88%, and 19.83%, respectively from Fiscal 2013 to Fiscal 2017.

Its consolidated total revenue for the six months period ended September 30, 2017 was 990.60 Crore and its consolidated restated profit after tax for the six months period ended September 30, 2017 was 34.57 Crore. Further, the company had PAT margin of 3.49% for the six months period ended September 30, 2017.

Pricing of the share:

The STL share is expensive. The consolidated EPS (Basic & Diluted) as on March 31, 2017 was Rs. 7.66. At lower and upper price band ( Rs. 327 - Rs. 332), PE ranges between 42.69 - 43.34. The average industry PE is 37.83. The valuation is done on higher side.

Except Minda Industries Ltd, its all peers are trading at cheaper price i.e. below 42.69 PE as on March 15, 2018. The company's RoNW is 13.01% which is also lower than its peers except Fiem Industries.

The peers comparison is given below:

As can be seen from the above table that, there are better options available in the secondary market.

Conclusion :

The company is fundamentally strong. It has the competitive strengths like longstanding and growing relationship with major OEMs, diversified product portfolio, production facilities close to its customers based on its philosophy - 'Be Glocal', vertical and horizontal integration of its operations from product designing to supply solutions, in-house research and development, design capability and technical collaborations, and experienced and strong management team. The company has been declaring dividend consistently. However, in spite of all this, it can not be ruled out that the valuation is on higher side and the  current IPO market is very bearish. 

Thank you for reading...Jai Hind

CA Prashant Seta

(Note : I write reviews based on my knowledge and understanding. The reader of this article should do his/her research before applying)

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