Diversification Into Semiconductor And xEV Sectors Will Boost International Presence

Key Takeaways

• Sansera's semiconductor expansion and order from a global leader could significantly increase future revenue streams.
  
• Diversification into non-automotive sectors aims to boost EBITDA and net margins, supporting long-term growth.
  
• Sansera faces challenges in key markets and sectors, with external risks like trade tariffs and execution hurdles potentially impacting revenue and earnings growth.

Catalysts

Engages in the manufacture and sale of precision engineered components for automotive and non-automotive sectors in India, Europe, the United States, and internationally.

• Sansera Engineering is proactively expanding its capabilities in the semiconductor sector, having secured a prestigious order from a global leader in wafer fabrication equipment. This new venture is expected to meaningfully grow over the next three years, potentially enhancing future revenue streams considerably.
  
• Despite a temporary decline in the aerospace sector due to labor issues, Sansera has added a large European-based customer, enhancing its customer base. Significant momentum from this sector is expected from Q4 FY '25 onwards, likely contributing to revenue growth and margin improvement.
  
• A diversification strategy is underway, with 40% of future business expected from non-automotive, xEV, and tech-agnostic products. Current revenue from these segments is 26%, and they plan to reach 38% in the next three years. This shift is likely aimed at enhancing overall EBITDA and net margins, given the higher margin profile of these segments.
  
• Sansera is optimistic about its agriculture segment, which delivered a 65% year-on-year growth, with projections for continued rural demand for tractors. This could drive significant future revenue growth.
  
• The company benefits from a robust order book of ₹22 billion, with more than 60% from international markets. This positions Sansera well to capture global opportunities, particularly in the recovering North American market, potentially improving revenue and earnings stability.

Sansera Engineering Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sansera Engineering's revenue will grow by 15.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 10.4% in 3 years time.
• Analysts expect earnings to reach ₹4.8 billion (and earnings per share of ₹79.24) by about February 2028, up from ₹2.0 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 36.7x on those 2028 earnings, up from 36.2x today. This future PE is greater than the current PE for the IN Auto Components industry at 26.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.39%, as per the Simply Wall St company report.

Sansera Engineering Future Earnings Per Share Growth

Risks

• The global auto industry is facing slower growth in key markets, including uncertainty in Europe and North America, which could impact Sansera's revenue, particularly given their significant exports to these regions.
  
• Sansera's non-automotive sector, particularly in Aerospace, experienced a 6.6% decline due to labor issues with a key customer, and ongoing softness in off-road and aerospace segments might affect future revenue growth.
  
• Export and domestic passenger vehicle segments faced weak demand, with PV business declining by 19% year-on-year, which could impact future earnings if the trend continues without significant recovery.
  
• While targeting a higher revenue mix from non-automotive sectors, this depends on the execution of high-precision engineering and overcoming developmental challenges, which poses a risk to achieving projected earnings.
  
• The potential imposition of trade tariffs and reciprocal tariffs on India, particularly affecting the U.S. market, presents an external risk that could impact Sansera's revenue from international markets.

Valuation

• The analysts have a consensus price target of ₹1569.1 for Sansera Engineering based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2000.0, and the most bearish reporting a price target of just ₹1330.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹46.4 billion, earnings will come to ₹4.8 billion, and it would be trading on a PE ratio of 36.7x, assuming you use a discount rate of 14.4%.
  
• Given the current share price of ₹1179.25, the analyst price target of ₹1569.1 is 24.8% 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.