Sandhar Technologies IPO – Should you Invest?
Sandhar Technologies IPO would test the stock market in the next few days along with 4 other IPOs lined up now. IPO of Sandhar Technologies would open for subscription on 19th March, 2018. Sandhar Technologies is a customer centric component supplier primarily catering to automotive OEMs and largely focused on safety and security systems of vehicles in India. Sandhar Technologies revenues grew at 9% CAGR in the last 5 years. It earned low margins of 2.7% in FY2017. What are the hidden factors in Sandhar Technologies IPO? Should you invest in Sandhar Technologies IPO when 4 other large IPOs are opening for subscription at the same time. Let me provide some insights about this IPO and to the review.
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About Sandhar Technologies Ltd
They are 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. They are 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 twowheeler rear view market in India. They are also one of the two largest manufacturers of operator cabins in India, along with being the largest player in the excavator cabins market. Its business involves designing and manufacturing a diverse range of automotive components, parts and systems, driven by technology, process, people and governance.
Sandhar Technologies IPO Issue details
IPO opening date: 19-March-2018
IPO closure date: 21-March-2018
Face Value: Rs 10 per share
Issue price band: Rs 327 to Rs 332 per share.
Issue size: Approx. Rs 300 Crores on higher price band
IPO Lot size: 45 shares and 45 shares there-off
Minimum investment: Rs 14,940 on higher price band
Leading Managers: ICICI Securities and Axis Capital
Listing: BSE / NSE
Download Sandhar Technologies IPO RHP Prospectus at this link.
Objects of the Sandhar Technologies Limited IPO issue
The Issue has Fresh Issue by the Company and an Offer for Sale by the Selling Shareholders.
1) Offer for Sale: Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder.
2) The Fresh Issue: The Objects of the Fresh Issue is to raise funds for:
(a) Repayment or prepayment in full, or in part of certain loans availed by the Company
(b) General corporate purposes
The Promoter of the Company is Mr Jayant Davar.
Company Financials (reinstated-Consolidated)
1) The company generated revenue of Rs 1,162 Crores for the year ended Mar-13 and Rs 1,633 Crores for the year ended Mar-17. Revenues for 6 months ended Sep-2017 was Rs 990.5 Crores.
2) The company posted a profit of Rs 19 Crores for the year ended Mar-13 and profit of Rs 39.5 Crores for the year ended Mar-17. Profits for 6 months ended Sep-17 was Rs 34.5 Crores.
3) Its FY17 EPS is Rs 7.66 and the last 3 years average EPS is Rs 7.26.
Company Financials (reinstated-Unconsolidated)
1) The company generated revenue of Rs 964 Crores for the year ended Mar-13 and Rs 1,374 Crores for the year ended Mar-17. Revenues for 6 months ended Sep-2017 was Rs 859.6 Crores.
2) The company posted a profit of Rs 20.8 Crores for the year ended Mar-13 and profit of Rs 36.6 Crores for the year ended Mar-17. Profits for 6 months ended Sep-17 was Rs 34.6 Crores.
3) Its FY17 EPS is Rs 7.16 and the last 3 years average EPS is Rs 6.82.
What are the key strengths of Sandhar Technologies Limited?
Here are the key strengths of the company.
1) Long-standing, and growing relationships with major OEMs.
2) Diversified product portfolio.
3) Production facilities close to its customers based on its philosophy – ‘Be Glocal’.
4) Vertical and horizontal integration of its operations from product designing to supply solutions.
5) In-house research and development, design capability and technical collaborations.
6) Experienced and strong management team backed by good governance standards.
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What are the Strategies of Sandhar Technologies Ltd?
Here are the key strategies of the company.
1) Expansion of product portfolio through investment in new products and business with high growth potential.
2) Expand its customer base.
3) Increase its wallet share from existing OEM customers.
4) Inorganic growth through strategic acquisitions.
5) Ensure efficiency and cost optimisation and enhance innovation and design capabilities.
Reasons to invest in Sandhar Technologies IPO
1) Its revenues grew at 9% CAGR in the last 5 years.
Risk Factors / Reasons not to invest in a Sandhar Technologies IPO
1) It earns low margins of around 2.7%.
2) They depend on a limited number of customers for a significant portion of its revenues. The loss of a major customer or significant reduction in production and sales of, or demand for its products from its major customers may adversely affect its business, financial condition, results of operations and prospects.
3) There are outstanding litigation against company, its Subsidiary and a Group Entity. Any adverse outcome in any of these proceedings may adversely affect its profitability and reputation, and may have a material adverse effect on its financial condition and results of operations.
4) They have a substantial amount of indebtedness, which requires significant cash flows to service such debts, and will continue to have substantial indebtedness and debt service obligations following the Offer.
5) Certain financial and other restrictive covenants in relation to this indebtedness limit its ability to operate freely, and its inability to meet its obligations could adversely affect its business and results of operations.
6) If they experience insufficient cash flows to fund its working capital requirements or to service its working capital loans, there may be an adverse effect on its business, financial condition, results of operations and prospects.
7) Its contingent liabilities, as per AS 29, could adversely affect its results of operations, cash flows and financial condition.
8) Its Previous Auditors have included certain qualifications and matters of emphasis in their auditor’s reports.
9) Company has not received unique identification number (“UIN”) from RBI in respect of certain allotments of securities made by company to Actis Group. Further, there have been delays in complying with reporting obligations to RBI in respect of certain allotments of equity shares made by company to Actis Group in the past.
10) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
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Recommendation / Investment strategy – Sandhar Technologies IPO
On the upper price band of Rs 332 and on restated consolidated FY17 EPS of Rs 7.6, P/E ratio works out to 43.3x. Even based on last 3 years consolidated restated EPS of Rs 7.26, P/E ratio works out to 45.7x. Means, company is asking higher price band of Rs 332 in the P/E ratio of 43x to 45x. Its listed peers like Minda Industries is trading at 52x and JBM Auto is trading at 32x, industry average P/E is 37.8x, hence Sandhar Technologies Issue price of Rs 332 at P/E ratio of 43x to 45x is over priced.
Company has posted simple revenue growth of 9% CAGR in the last 5 years. It is generating low margins. Its issue price is over priced. Considering all these factors, I would personally like to stay away from such high priced IPOs.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Sandhar Technologies IPO – Should you Invest
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Thank you Sandip