EV Battery Chargers And Pune Expansion Will Support Future Success

Key Takeaways

• Successful joint ventures and strategic expansion efforts are enhancing business synergies and have the potential to significantly boost future earnings.
  
• Entry into the EV segment and diversification of the product portfolio are expected to drive long-term revenue growth and profitability.
  
• Economic slowdown and high debt levels could impact Sandhar Technologies' financial health and growth, with risks from inflation, trade gaps, and geopolitical uncertainties.

Catalysts

Engages in the manufacturing and assembling of automotive components for automotive industry in India and internationally.

• Sandhar Technologies is seeing strong growth in its joint ventures and is optimistic about maintaining this momentum, likely benefiting future earnings through improved business synergies and cost control.
  
• The company's expansion projects, such as those in Pune for cabins and fabrication and die casting, are expected to start commercial production by March 2025, potentially boosting future revenue.
  
• Sandhar's entry into the EV segment with battery chargers could drive future revenue growth, especially as they begin commercial production and expand their customer base.
  
• Localization and enhanced business synergies are expected to continue driving profitability, as evidenced by the joint ventures being PAT positive and having an average EBITDA of 12.5%, potentially improving net margins.
  
• Sandhar is actively working on diversifying its product portfolio and expanding its customer base, which should lead to increased content per vehicle, supporting revenue growth and earnings stability.

Sandhar Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sandhar Technologies's revenue will grow by 11.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 4.3% in 3 years time.
• Analysts expect earnings to reach ₹2.3 billion (and earnings per share of ₹36.8) by about March 2028, up from ₹1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.6x on those 2028 earnings, up from 15.2x today. This future PE is lower than the current PE for the IN Auto Components industry at 26.6x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.13%, as per the Simply Wall St company report.

Sandhar Technologies Future Earnings Per Share Growth

Risks

• The economic growth rate in India has been revised downward, affecting projections. The slowdown in manufacturing and corporate investments may impact Sandhar Technologies' revenue growth.
  
• High inflation, low capital flows, and a record trade gap in India could pose risks to economic stability, potentially affecting Sandhar Technologies' net margins.
  
• The drag on Sandhar's overseas business, especially in Europe, due to low demand and economic slowdown, could negatively impact overall earnings.
  
• Continued high debt levels due to ongoing capital expenditures could pressure Sandhar Technologies' financial health, potentially affecting net margins and profitability.
  
• The potential impact of tariffs and geopolitical uncertainties on its exports to North America could lead to revenue volatility.

Valuation

• The analysts have a consensus price target of ₹581.0 for Sandhar Technologies based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹52.0 billion, earnings will come to ₹2.3 billion, and it would be trading on a PE ratio of 23.6x, assuming you use a discount rate of 15.1%.
  
• Given the current share price of ₹341.7, the analyst price target of ₹581.0 is 41.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.