Sandhar Technologies - An emerging market leader

Stock Opportunities Untested - but worth a good look
23

Sandhar Tech (Q3 FY24) (rough cut)

  1. Start of better utilisation of assets and capex done in few past quarters. Enormous growth is to be seen. EV space progressing well. DC-DC charger, motor controller and charger.
  2. Q3 – largest customers – TVS motors, 30% of revenue, Hero -19%, JCB – 9%, Honda-3% and so on.
  3. Capacity utilisation – new projects of casting and sheet metal – mid level (50-60% and likely to be fully utilised by end of FY25). Proprietary items (smart locks, DC-DC converter, MCU, EV Charger) need incremental capex but small.
  4. Romania is still at 10-20% capacity. Bosch, ERW? customers are planning to shift from China to this plant. Likely to reach good capacity utilisation by FY25/26.
  5. EV products – one product under trial, hope to launch by 1QFY25. Engaged with 2 customers.
  6. Q4 outlook – seems extremely strong.
  7. Election impact – commercial vehicles may see pull back. Others will not see pull back.
  8. Why set up capacity –at the call of customer. Only when customer says then only capacity is set up. Smart locks, EV: capacities are set up at the behest of the customer.
  9. Others constitute: tools and dies, after market, plastics business, clutch and break panels.
  10. What are the peak revenue for sheet metal – (my calculation: sheet metal in Q3 FY24 was ~105 crores, so annual run rate at 60% capacity is 400+ crores. Hence this may go to 600+ crores in FY25).
  11. Most bullish on proprietary products (smart lock): mechanical lock cost was – 200-300rs, smart lock shall cost 10x. Existing business will catapult. Revenue potential (from smart locks) is 10x. 10-20m vehicles are sold domestically. (my calculation: addressable domestic market for 15m vehicles is in 3000 crores to 4000 crores range). In addition, global market is also a huge potential. My own hunch is smart lock segment itself can be equal to it its overall revenue as of today in 3 to 5 years.
  12. Smart locks? for Honda, Suzuki, and Hyundai (4-wheeler) will be launched in FY25.
  13. Debt is at 554 crores. 100 crore debt re-payment likely next year.
  14. Margins are likely to be in 10-11% range in FY25. Potential is 12 to 13% in long-term.
  15. EV products capex – around on 10 crores in FY24, FY25 20-30 crores. Asset turn and margin: very asset light: MCU – output per piece supply is 1000s of rupees. Sub parts done already so capex is not required much.
  16. Bought a company in 2006 – oldest die casting facility. Patent came along the way. Tools for seat belt chair (not sure here) (60% market share) are made by us. Customers are extremely happy due to technology.
  17. Every casting for TVS is from us.
  18. Power and fuel 100 crore cost: solar power capacity: contract with solar power company - zero capex investment, 2.5 to 3 rs per unit savings expected.

Disclosure: own it and added more today.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

11 Likes
24

Hii JP sir,
How do you see PEG ratio of 16 for this stock?

25

Hi sir. I think wrt to debt the company said something different. Net Total Debt at 539cr. Will pay Rs 40cr this year as part of term loan instalment. Next year’s conservative payback target is Rs. 100cr (57-58 Cr regular instalment + pay extra).

26

Thanks a lot @Shiveroptimism . I corrected it, you are right.

@anmol_satyam PEG of the company for me is ~1.5x. TTM PE is 30 (also given on screener.in - Sandhar Technologies Limited financial results and price chart - Screener). I expect company to do a topline of 15 to 20% and bottomline of 20-25% over the next 2 to 3 years. So the PEG of less than 2x is very much in my comfort zone.

Please note that my numbers/projections incorporate my assumption of growth and management guidance of margin improvement so this may differ from actual outcome on positive or negative side. Also note my disclaimer below:

Disclosure: own it and added more in last 30 days.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

3 Likes
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Hi @joinjp2003, what are your thoughts on the cyclicality of this business and customer concentration risk? Also the Management expected higher growth but it wasn’t achieved (I think it 20% actual vs 25-30% which they said).

I have been following this company and built some position recently. Read your comments here and it re-enforced my confidence :slight_smile:

I happened to have worked with the Company on an acquisition they eventually didn’t go through with. But the Management is quite aggressive in their projections and Mr. Dawar is a nice man to talk to!

2 Likes
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Hi @Anubhav_Garg , thanks for writing in.

I am not aware of the guidance given by the company.

On cyclicality: I think underlying industry is cyclical. However, company has not shrunk substantially on margins or revenues in the last 7 years (barring covid years). Mainly driven by introduction of new products (metal sheet, die casting), higher content value per vehicle (manual locks to smart locks) and ram-up of subsidiary operations (capex fruition).

2 Wheeler sales has been largely flat over the past 3 to 5 years. However, company has grown its sales in 20-25% range for the past two full fiscals and current 9M.

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Source: https://www.careratings.com/uploads/newsfiles/1685956360_Two%20Wheeler%20FY24%20Outlook_CareEdge.pdf

Disclosure: own it and added more in last 30 days.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

3 Likes
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The company is well-poised for growth and there are multiple variables which are likely to support:

  • Increase in capacity utilization from current lows of 55-60%. With no major capex planned, expect operating leverage to play out.
  • Scope of margin expansion from current 9-10% to 12-13% in the short to medium term
  • Deleveraging (to repay debt of 140 crores in next 15 months). Could be even higher if company generates better CFO
  • Integrating manufacturing facilities for better operating efficiency
  • Topline is expected to grow at 20-25% and with all the variables playing out, the bottomline could easily grow by 30%+
  • Likely to generate CFO of 350+ cr in FY24 which values the company at 8x of CFO (very reasonably priced)

Obviously, there are risks in terms of higher customer concentration and external vulnerability to slowdown in 2-wheeler market. But on an overall basis, the risk-reward ratio is quite favourable at the moment. Any thoughts?

6 Likes
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ROE of the company is very less. Just 8%. Isn’t it a concerning factor.

1 Like
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I think that’s a fair point.
If we look at Motilal Oswal’s wealth creation study 2023, the biggest wealth creators were the ones which improved their return on capital (ROCE/ROE) over a period of time. For Sandhar, with reduction in debt, no further capex requirement and increasing profitability, it could be one of those turnaround stories where Returns can improve significantly.

8 Likes
32

Few thesis pointers which look interesting:

  • Sitting on operating leverage with a good order book and visibility.
  • Management has guided for a strong Q4.
  • Margins are on the improving trajectory and shall gradually move towards 12-13% in the next few quarters.
  • Company is slowly deleveraging as well.
  • Solar power integration for cost savings.
  • Plant consolidation for cost savings and efficiency.
  • Topline growth of 16-20% with gradual margin improvement may lead to a PAT of around 250-300Cr
  • Exit multiple in the range of 25-30x is a reasonable expectation
  • If the numbers play out then the odds do seem to be good at the moment

Disc: Invested and biased

14 Likes
33

Strong Q4 performance by Sandhar.

Sandhar’s Q4 earnings show a 45.3% increase in net profit, reaching ₹35.9 cr, and a 20% rise in revenue, reaching ₹917.8 cr. EBITDA is up 45.2% at ₹98 cr, with a margin of 10.7%.

Co. has recommended a final dividend of INR 3.25 per share.

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4 Likes
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Sandhar Technologies ( very bullish commentary ) -

Q4 and FY 24 results and concall highlights -

Company’s product profile -

Automotive locking systems, Latches, Hinges and Door handles

Auto Vision Systems ( basically rear view mirrors )

Sheet metal components for 2W, 3W, PVs, CVs

Operator Cabins for OTR vehicles and CVs

Zinc dye-casting products for 2W, 3W, PVs and CVs

Aluminium dye - casting products for 2W, 3W, PVs and CVs

Magnesium dye - casting products - recently acquired a manufacturing facility for the same

Automotive Opto Electronic systems like - keyless entry systems, reverse parking assist systems etc

Polymer based products for 2W and 3W

Painting, plating and coatings

Fuel Pumps, filters and Wiper blades

Wheel rims and Handle bars for 2W

Q4 outcomes -

Sales - 918 vs 765 cr, up 19 pc
EBITDA - 98 vs 68 cr, up 35 pc ( margins @ 11 vs 9 pc )
PAT - 36 vs 25 cr, up 42 pc

FY 24 outcomes -

Sales - 3521 vs 2909 cr, up 21 pc
EBITDA - 341 vs 246 cr, up 34 pc (margins @ 10 vs 8 pc)
PAT - 110 vs 74 cr, up 45 pc

Company’s clients -

2W - Hero, TVS, RE, Honda, Ather, Suzuki, Mahindra

4W - Tata Motors, Mahindra, Honda, SML ISUZU

CV - JCB, Ashok Leyland, Volvo, Komatsu, Tata-Hitachi

Manufacturing facilities -

Company has manufacturing facilities located in -

Domestic - HP, Uttarakhand, Maharashtra, Gujarat, TN, Rajasthan, Karnataka

International - Poland, Romania, Spain, Mexico, South Korea, Japan, Taiwan

Product wise revenue split -

Locking and Vision systems - 25 pc
Cabins and fabrications - 15 pc
Sheet metal parts - 15 pc
Aluminium Dye Castings - 24 pc
Assemblies - 10 pc
Others - 10 pc

Segment wise revenue split -

2W - 58 pc
PV - 20 pc
Off-Highway vehicles - 15 pc
CVs - 2 pc
Others - 5 pc

New products line up -

EV Motor controller for 2W/3W - production to start in Jun 24

EV battery chargers for 2W/3W - production to start in Jul 24

DC - AC converter for 2W/3W - production to start in Oct 24

Company has done a lot of Capex in the last 2 yrs in its sheet metal parts and Dye - Casting divisions. This Capex can potentially add revenues of around 1500-1700 cr for the company without incurring any fresh capex. However, the company may still incur capex going fwd as it looks to add new components to its portfolio

Company should be able to grow its topline by 20 pc in FY 25 as well with a 50-100 bps margin expansion

Company has added Smart Locks to its product line up. Suzuki and Honda are moving onto these smart locks wef Oct and Nov 24. This should be a major Pivot for the company as the content per vehicle in these locking systems is far higher

Most of the growth in FY24 was led by Dye Casting and Sheet Metal segments

The value of Motor controllers that company is slated to begin to produce varies from Rs 4k-8k per vehicle

Company aspires to keep growing @ 15-20 pc CAGR ( revenues ) for next 3-5 yrs

Disc: planning to add, not SEBI registered, biased

6 Likes
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3 Likes
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Sandhar technologies -

Q1 FY 25 concall and results highlights -

Revenues - 913 vs 829 cr, up 10 pc
EBITDA - 90 vs 75 cr, up 19 pc ( margins @ 9.85 vs 9.10 pc )
PAT - 29 vs 22 cr, up 35 pc

Geographical breakup of revenues -

Standalone - 74 pc
Indian Subsidiaries - 13 pc
International Subsidiaries - 13 pc

Product wise breakup of revenues -

Locking and Vision systems - 24 pc
Cabins and Fabrications - 14 pc
Sheet metal components - 18 pc
Aluminium Dye castings - 26 pc
Assemblies - 10 pc
Others - 8 pc

Segment wise breakup of sales -

2W - 60 pc
PV - 18 pc
OHV - 15 pc
CV - 2 pc
Others - 5 pc

Schedule for beginning of mass production of EV components -

Motor controllers -
250 W - Aug 24
2000 W - Sep 24
6000 W - Dec 24

Battery chargers -

550 W - Sep 24
750 W - Started in Jul 24

AC-DC converters -

180 W - Dec 24

Company is localising a lot of the parts that go into these EV components. In medium term, company expects margins in these EV products to be as good or better than company level margins

Q1 is typically the slowest Qtr for the company

All of company’s JVs have turned EBITDA positive wef Q1 FY 25 ( including their plants in Barcelona, Mexico, Romania )

Company’s new plant at Pune for making Cabin and Dye Castings to start commercial production by Sep 24. This segment of company’s business is growing rapidly. Hence this capex was urgently required to keep meeting the customer demands

The EV products that the company intends to commercialise this yr should give them 5-10 cr revenues this year. Ramp up in revenues is only expected wef FY 26

The high inventory levels in the system that exist in PVs these days is not the case with 2-Wheelers. The offtake and volume growth in 2 Wheelers has been much better

Company expects revenues from smart locks ( new product line ) to start flowing in from Oct, Nov 24. Company will start supplying Suzuki and Honda. Content per vehicle in case of smart locks is much higher ( each unit should cost @ around Rs 4-5k )

Net debt on books @ 550 cr vs 592 cr on 31 Mar 24. Aim to reduce debt to below 500 cr levels by end of FY 25

In Q1, there was a slowdown in construction equipment segment. From Q2 onwards ( as this segment picks up ) there should be better topline growth for the company

Capex lined up for FY 25 is aprox 250 cr. Capex intensity is likely to reduce wef FY 26

Aim to increase EBITDA margins to around 10.5 pc in FY 25 and 11 pc by end of FY 26

Company expects the number of 2 Wheelers with smart locks can be in double digits in terms of Mkt share over a 2 yr period

Sandhar’s Mkt share in 2 Wheeler locking system stands at 70 pc in the domestic mkt

32 pc of company’s revenues come from TVS, 19 pc from Heromotocorp, 8 pc from JCB. These are company’s top 3 customers. Other important customers contributing 4-5 pc of sales each include Honda, Bosch

Expect the smart locks EBITDA margins to be in line with the mechanical locks business ie @ 13-15 pc EBITDA levels. But the value of business per lock is expected to be 6X to 10X

Opinion : business momentum looks strong. Should result in good to great topline and bottomline growth

Disc: holding, not a buy/sell recommendation, biased, not SEBI registered

10 Likes
37

Sandhar Tech

  • Margins will expand by 50 bps for FY25 and a further 50 bps for FY26

  • Deleveraging the balance sheet

  • Improving return ratios

  • Expanding the product portfolio and increasing content per vehicle

  • EV will start contributing significantly in FY26 & Smart Locks to start from Oct/Nov

7 Likes
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Q2FY25 Results - Solid performance

1 Like
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Sandhar Technologies -
Q2 FY 25 results and concall highlights -

Revenues - 989 vs 888 cr, up 11 pc
EBITDA - 104 vs 84 cr, up 24 pc ( margins @ 10.5 vs 9.4 pc )
PAT - 42 vs 28 cr, up 55 pc

Category wise revenue breakup -

2Ws - 62 pc
PVs - 17 pc
OHVs ( off highway vehicles ) - 14 pc
CVs - 2 pc
Others - 5 pc

Products wise revenue breakup -

Cabins and Fabrication - 14 pc
Sheet metal parts - 18 pc
Aluminium Dye Castings - 26 pc
Locking systems - 18 pc
Vision systems - 5 pc
Others - 8 pc
Assemblies - 10 pc

EV parts under development with tentative timelines for commencement of production -

Motor controllers for 2Ws and 3Ws - Apr 25
Battery chargers - Feb 25
AC-DC converters - Apr 25

Company is localising a lot of the parts that go into these EV components. In medium term, company expects margins in these EV products to be as good or better than company level margins

32 pc of company’s revenues come from TVS, 19 pc from Heromotocorp, 8 pc from JCB. These are company’s top 3 customers. Other important customers contributing 4-5 pc of sales each include Honda, Bosch

Company has 07 operational JVs. 06 of them are PAT positive. Combined together, the 07 JVs make an EBITDA of 10 pc

Company is guiding for a topline of 4000-4100 cr for FY 25 and 4500-4600 cr for FY 26. EBITDA margins for full FY 25 and 26 should be around 10.5 and 11 pc respectively

Capex spends lined up for their FY25 @ 250 cr. Next year onwards, company is guiding for an annual capex equivalent to annual depreciation ( or thereabouts )

Company expects H2 to be better than H1 - both for 2W and construction equipment segments. As such, company generally does 40-45 of its business in H1 and 55-60 pc of the business in H2

The order from Suzuki 2Ws for smart locks has been delayed from Nov 24 to Jan 25. These r high value products ( vs the traditional mechanicals locks )

Gross Debt @ 620 cr
Net Debt @ 580 cr

Do not intend to breach Gross Debt figure of 700 cr. As such, the capex intensity should taper off wef next FY

According to FADA, rural demand has picked up in Q3 ( against general expectations ). Also ( as of Nov ), the 2Ws inventory has dropped to < 30 days at the dealer levels. This has happened after several Qtrs and is a very healthy sign for the Industry

Company has started supplying Castings, Mechanical locks to Honda 2Ws. Already doing business worth > 100 cr / yr with them. They r also slated to supply smart locks to Honda 2Ws as well ( after Suzuki 2Ws ). They expect Honda to also become one of their major clients going fwd

Disc: holding, biased, not SEBI registered, not a buy/sell recommendation

15 Likes
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Sandhar got listed in 2018, as per screener-chart the price then was around 350. Seven years later it has come a full circle @350 odd.

2 Likes