Automobiles April 12, 2018

India Research
Sandhar Technologies
Initiating Coverage Bloomberg: SANDHAR IN
Reuters: SNTL.NS BUY
Diversified Auto Ancillary at attractive Valuations Recommendation
Sandhar Technologies Ltd (Sandhar) is a multi-product auto component supplier CMP: Rs372
based out of Gurgaon. It is a dominant Auto lock assemblies and Rear View Mirror Target Price: Rs474
manufacturer in India. It has strong relationship with OEMs like Hero Motocorp, Upside (%) 27.5%
TVS Motor, Royal Enfield and Honda Cars. Stock Information
Market Cap. (Rs bn / US$ mn) 22/0.35
Sandhar’s 2W business (locks, mirrors & wheels - 55% of sales) is on a strong
52-week High/Low (Rs) 376/306
footing: Sandhar enjoys dominant share in locks and mirrors with 2W OEM’s. 3m ADV (Rs mn /US$ mn) -/-
Currently it has 100% share of business with Hero Motocorp, TVS Motors and Royal Beta -
Enfield (~54% of 2W industry). We anticipate Sandhar’s 2W segment to grow in Sensex/ Nifty 34,101/10,458
double digits over the next 2-3 years on account of (a) overall 2W industry growth in Share outstanding (mn) 60
India due to increasing youth population and rural recovery b) Its shift towards
Stock - - -
introducing premium products (Smart locks, ORVM mirrors etc ) resulting in increase Rel. to Sensex - - - -
in content per vehicle and c) its recent entry in scooter segment (TVS Jupiter).
4W and Cabin Fabrication Business (~20% of sales) is on up cycle: Sandhar has
Analysts Contact
been supplying auto components to Honda Cars since last 20 years. Over the last 4
Mahesh Bendre
years its content per vehicle in Honda cars has grown from 8K to 12K. Honda’s plan +91 22 6176 0828
to introduce 6 new models and increasing its market share from 5% to 10% in India [email protected]
over the next 3-4 years augurs well for Sandhar. Sandhar has set-up a new facility in
Jaipur for supplies of fabrication parts (operator cabin and fabrication components)
across JCB’s products line. It expects its cabin revenues to double to ~Rs4 bn in two
years with new facility addition.
New plants to be operational: Currently Sandhar has 34 manufacturing units and it
is in process of commissioning 5 more plants in CY18. Out of ~5bn capex incurred by
it over the last 4 years, Rs2.5bn capex is yet to start generating sales for the company
(sales potential of ~Rs6bn). We estimate 18.7% sales CAGR for Sandhar over FY18-20.
PAT margins to expand from 3.5 to 5.8% - Profit to double over FY18-20: We
estimate Sandhar’s PAT margins to expand from 3.5 % to 5.8% over FY18-20E on
account of a) 70bps EBITDA margin expansion (operating leverage and increasing
contribution of higher profitable business) and b) Interest cost saving on account of
debt repayment out of IPO proceeds. The company is expected to report earnings
CAGR of 52.2% over FY18-20E resulting in profits doubling over the same period.
Attractive Valuations - BUY: Sandhar is among the top five diversified auto ancillary
listed entities in India. It has exhibited steady and consistent operating history. We
believe, Sandhar has now entered into a high growth phase wherein its sales and PAT
are expected to grow at 18.7% and 52.2% over FY18-20E respectively. Further we
believe, JVs will enable sustenance of growth beyond FY20E. We initiate coverage on
Sandhar with a BUY rating and target price of Rs474 (PER of 18xFY20E earnings -
~20% average discount to peers) on the back of 20% ROE and debt free credentials.
Exhibit 1: Key Financials
Y/E Mar (Rs Mn) FY15 FY16 FY17 FY18E FY19E FY20E
Net Sales 14,821 15,132 16,269 19,358 23,432 27,267
EBIDTA 1,391 1,413 1,458 2,070 2,578 3,108
EBIDTA (%) 9.4 9.3 9.0 10.70 11.0 11.4
PAT 384 375 401 685 1,160 1,585
EPS (Rs) 7.5 7.3 7.8 11.4 19.3 26.3
YoY (%) 15.5 (2.4) 6.9 70.9 69.4 36.6
ROE (%) 16.5 14.1 13.9 14.3 16.8 20.4
EV/EBIDTA (x) NA NA NA 11.2 8.9 7.1
P/E (x) NA NA NA 32.7 19.3 14.1
Source: Company, Karvy Stock Broking
 April 12, 2018

Exhibit 2: Statement of Profit and Loss Sandhar Technologies

Y/E Mar (Rs Mn) FY15 FY16 FY17 FY18E FY19E FY20E Company Synopsis - Presently, Sandhar is engaged into
Net Sales 14,821 15,132 16,269 19,358 23,432 27,267 designing and manufacturing of diverse range of automotive
components for safety and security systems of vehicles. It
YoY (%) 17.2 2.1 7.5 19.0 21.0 16.4
dominates the two-wheeler locking systems market and the
Raw material cost 9,080 9,014 9,512 11,125 13,466 15,670
Company Background
commercial vehicle rear view market in India. Its Customer
Employee Cost 1,843 2,018 2,354 2,667 3,156 3,564 portfolio consists of 79 Indian and global OEMs and 5 key
Admin Expenses 2,507 2,686 2,945 3,496 4,232 4,925
 Customers
MSIL incorporated which
in 1981 is acontribute overall
subsidiary ~70% of
of Suzuki its total
Motor revenues
Corporation
Total expenses 13,429 13,719 14,811 17,288 20,854 24,158
(56.21% are formerly
holding) Hero Motocorp,
knownTVS as Motor,
MarutiRoyal Enfield,
Udyog. Honda
It is Cars and
a largest car
EBIDTA 1,391 1,413 1,458 2,070 2,578 3,108 Bosch.
manufacturing company in india.
EBIDTA Margin (%) 9.4 9.3 9.0 
10.7 It11.0commands
11.4 over
Sandhar 50%manufactures
market share in thesuch
products Indian domestic
as lock Passenger
assemblies, mirror
Depreciation 524 552 603 679 Vehicles
742 Car Segment
800 and operator
assemblies, has somecabins
of thefor
flagship products
off-highway under
vehicles, its name
aluminium
EBIT 868 862 855 1,392 1,836 2,309Ciaz,spools,
like Dzire, Ertiga,spindles,
Wagon R, andAlto,
hubs.Swift,
OtherCelerio,
productOmni,
categories including
Baleno, Vitara
Brezza, S-Cross wheel
etc. assemblies, handle bar assemblies, brake panel assemblies,
Interest 410 424 427 465 247 100
 MSIL’s success sheet metal components.
is attributed The Company
to Suzuki Corporation has which
Japan 31 manufacturing
has been a
Other income 57 52 72 51 68 57
key driver offacilities acrossTechnology
affordable key auto-clusters
and instrong
the northern, southern, and
implementation of
PBT 514 490 500 978 1,658 2,265 western parts of which
India, and most of their facilities are in share
close
International Quality Standards helped MSIL increase its market
(-) Tax 130 115 99 293
in497the affordable
679 proximity to the plants
Car Segment. of ourhas
MSIL OEM customers.
over the period built 3305
Tax/ PBT 25.3 23.4 19.8 30.0 30.0
Authorized30.0 Service Workshops (1862 dealer workshops & 1443 Authorized
Extraordinary Items - 37.4 5.1 - - - Shareholding Pattern Percentage (%)
Service Stations) all over the country and with ease of servicing and
Promoter 70.14
PAT 384 412 406 685 affordable
1,160 auto-parts.
1,585
FPIs 3.76
Source: Company Data, Karvy Stock Broking  MSIL plans to achieve its goal of production of 2mn cars per year by FY20.
DIIs 9.06
Gujarat Plant Others
which has annual capacity of 2,50,000 Cars has begun 17.04
production and Totalmanagement expects it to be fully operation by FY19. 100
 The success of over 200
Source: NexaData
Company outlets has helped MSIL enter the premium car
segment with products like Vitara Brezza, Ciaz, Baleno and Ignis. With focus
on Electric Vehicles for the next decade, MSIL has plans to tie-up with
Exhibit 3: Balance sheet Exhibit 4: Cash Flow Statement
Suzuki Corporation for innovation towards manufacturing of Electric Car
Y/E Mar (Rs Mn) FY15 FY16 FY17 FY18E FY19E FY20E
Vehicles. Cash Flow FY15 FY16 FY17 FY18E FY19E FY20E
Equity capital 102 512 512 602 The602 602 has
Company Net aprofit
state of art R&D 384
Centre337 396 centre
in Rohtak 685with
1,160 1,585
integrated
Reserves 2,490 2,225 2,502 5,933 facility
6,674 with
7,687 33 Depreciation
different test tracks, 524
requisite
552testing
603and safety
679 labs,
742 which800
Net worth 2,592 2,736 3,013 6,535 helps
7,276 the
8,289MSIL conceptualize,
Deferred tax design
(22) and
(31) develop - new- products - and-
Total Loans 3,090 3,192 3,925 1,675 upgrade
1,175 the
275 existing
Change product
in W/C portfolio.
(66) 452 (578) (129) (390) (190)
Deferred Tax Liability 103 74 73 73 73 73 Operating cash flow 820 1,310 420 1,234 1,512 2,195
Total Liabilities 5,785 6,002 7,012 8,283 8,524 8,637 Capex (1,256) (1,220) (1,022) (1,000) (850) (850)
Gross block 7,163 8,224 9,446 10,446 11,296 12,146 Investments - (11) - - - -
Less: Acc. depreciation 2,401 2,940 3,482 4,161 4,902 5,702 Investing cash flow (1,256) (1,231) (1,022) (1,000) (850) (850)
Net block 4,762 5,284 5,964 6,285 6,393 6,444 Free Cash Flow (436) 90 (602) 234 662 1,345
Work in progress 405 552 292 292 292 292 Dividend (111) (217) (95) (164) (419) (572)
Investments 30 41 41 41 41 41 Equity 248 24 (24) 3,000 - -
Inventories 1,572 1,598 1,671 2,137 2,656 3,091 Debt 345 102 733 (2,250) (500) (900)
Debtors 1,891 1,681 2,111 2,256 2,889 3,362 Financing cash flow 482 (92) 615 586 (919) (1,472)
Cash 73 60 73 894 637 509 Net change in cash 46 (12) 13 821 (257) (127)
Loans and advances 393 413 440 524 634 738 Opening cash 27 73 60 73 894 637
Current assets 3,928 3,753 4,295 5,811 6,816 7,700 Closing cash 73 60 73 894 637 509
Current liabilities 3,211 3,534 3,442 3,982 4,820 5,609 Source: Company Data, Karvy Stock Broking

Provisions 129 95 138 165 199 232

Net current assets 588 124 714 1,664 1,797 1,860
Total Assets 5,785 6,002 7,012 8,283 8,524 8,637
Source: Company Data, Karvy Stock Broking

2
 April 12, 2018

Sandhar Technologies
Company and Promoter Background
Sandhar Technologies (Incorporated in 1987) is a Gurgaon based auto component
supplier to Automotive OEMs. Over the last 30 year the Company has thrived from
single manufacturing unit to 34 facilities under the leadership of Mr. Jayant Davar who
is a first generation entrepreneur
Sandhar manufactures products such as lock assemblies, mirror assemblies, operator
cabins for off-highway vehicles, aluminium spools, spindles, and hubs. It dominates
the two-wheeler locking systems market and the commercial vehicle rear view market
in India. Its Customer portfolio consists of 79 Indian and global OEMs and 5 key
Customers which contribute overall ~70% of its total revenues are Hero Motocorp, TVS
Motor, Royal Enfield, Honda Cars and Bosch.
 Sandhar is led by Jayant Davar, Founder, Co-chairman and Managing Director
who is a Mechanical Engineer and Alumni from the Harvard Business School.
 He is a first generation entrepreneur having over 3 decades of experience in
the Automotive OEM component manufacturing industry.
 Under his leadership, Sandhar which commenced operations as a supplier to
Hero Honda for sheet metal components has expanded to 34 facilities all over
India including 1 facility in Poland and 1 facility in Mexico.
 He has also been the chairman of the Confederation of Indian Industries,
Northern Region, and has been the president of the Auto Component
Manufacturers Association in the past.
 Post IPO promotor holds 70% stake in the Company

Exhibit 10: Sandhar Revenue Contribution Exhibit 11: Sandhar Geographic Mix

11%
14%

14%

10% 55%
86%

10%

2W OEMS 4W OEM
India Europe
Off Highway OEM Europe
Source: Company Data Source: Company Data

Exhibit 13: Sandhar Product Mix

Exhibit 12: Sandhar Top customers Contribution
Top Cutomers Sales Contribution Product categories Sales Contribution

Hero 29% Locks 22%

Mirror Assembly 12%
TVS 24%
Aluminium Components 16%
Honda 8%
Wheel Assembly 11%
Bosch 5%
Sheet Metal Components 13%
Royal Enfield 4%
Cabins 7%
JCB 3%
Plastic Parts 4%
Source: Company Data
Handle Bar Assembly 4%
Other Products 10%

Source: Company Data

3
 April 12, 2018

Sandhar Technologies
Investment Rationale

Sandhar’s 2W business (Locks +Mirrors +Wheels - 55% of sales) is on

strong footing
Sandhar is a leader and dominant supplier of locking systems and rear view mirror in
2W and CV market in India. Currently it has 100% Share of business with Hero
Motocorp, TVS Motors and Royal Enfield (54% of 2W industry).
As per the CRISIL research (Company Red herring Prospectus-RHP) 2W locking
systems market catering to the OEM demand is around ~Rs7bn in FY17 with blended
average realization of Rs300 per lock kit. With arrival of smart locks (lock kit with an
immobilizer commands / mechanical lock with magnetic shutter etc) the overall
realization are expected to go up in the range of Rs. 900-1,000. CRISIL Research
estimates (Company RHP) 2W locking systems market to grow at a CAGR of 22-24% to
Rs17.9-19.8 billion by FY2022. Being a largest player in the industry, Sandhar is likely
to be default beneficiary of the same. Till recently Sandhar was catering only to Motor-
cycle market in India. However it has recently entered to scooter market with TVS
Jupiter model.
We anticipate Sandhar’s 2W segment to grow in a double digit (12-14%) over the next
2-3 years on account of (a) overall 2W industry growth in India due to increasing youth
population and rural recovery b) Sandhar’s shift towards introducing premium
products (Smart locks, ORVM mirrors etc ) resulting in increase in content per vehicle
and c) its recent entry in scooter segment (TVS Jupiter).

4W business with Honda Cars looks promising

Sandhar has been supplying auto components to Honda Cars since last 20 years. It
generates ~10% of its sales from them. It provides Locks, Mirror Assembly, Door
handles, painted parts to Honda Cars under its HSCI division. Products under the
HSCI division are manufactured in its manufacturing plants located at Gurugram and
Alwar. Honda Cars reported sales of 170,026 units during FY18 (8% YoY growth with
~5% market share in Indian PV market). As per Honda Cars India management, the
company plans to launch three new models in FY19 (Honda Amaze, CR-V and
the Civic) and overall six new models within next three year period . The company is
also planning to develop new models in the EV and hybrid vehicle space in India.
Management plans to increase its market share from ~5% to 10% in India over the next
3-4 years. Over the last 4 years Sandhar’s content per vehicle in Honda Cars has grown
from ~8K to ~12K led by new product supply. Honda’s plan to introduce 6 new models
and increasing market share from 5% to 10% in India over the next 3-4 years augurs
well for Sandhar in the medium to long term.

Operator Cabins & Fabrications Business to Double in the next two years
Sandhar is one of the largest manufacturers of operator cabins in India (largest player
in the excavator cabins market). The Company entered into this business in FY13 with
two acquisitions of Mag Engg (Rs 300mn) and cabin business of Arkay Fabsteel
(Rs200mn). The company has two facilities in Jaipur (Rajasthan) and Chennai (TN) to
execute new order wins. Typically construction equipment and agricultural equipment
OEMs outsource operator cabin fabrication and fabrication of components, such as
buckets, shovels and arms, to third-party suppliers. Operator cabin fabrication involves
assembly of several components, such as steel cabins, wiring harnesses, glass, locks
and plastic parts. Operator cabin fabrication is a capital-intensive business and requires
technical knowhow to fabricate protective structures. Proximity to construction
equipment OEM is considered to be critical. The average realization for an operator
cabin is ~Rs70,000 depending on cabin specification. CRISIL Research estimates
(Company RHP) the operator cabin and fabrication market to be around ~Rs5.5 billion
in FY 2017. Based on infrastructure spending plans, CRISIL Research (Company RHP)

4
 April 12, 2018

Sandhar Technologies
expects the construction industry to grow at a 12-13% CAGR over FY18 to FY22 and
estimates the operator cabin and fabrications market to grow at a CAGR of 16-18% to
~Rs12 billion by FY22. JCB India is a leader in earthmoving equipment supplier with
75% market share in India. Post sharp business downturn in the past, JCB has reduced
its vendor base to 12 vendors. Currently Sandhar gets majority of the business from
JCB in this segment. Sandhar is setting up a new facility in Jaipur for supplies of
fabrication parts across JCB’s products line compared to earlier supply only to JCB’s
excavators. Sandhar expects its cabin revenues to double to ~Rs4 bn in two years with
new facility addition.

New 5 plants to become operational in CY18

Currently Sandhar has 34 manufacturing facilities (India – 31, Spain – 2, Mexico – 1). Its
manufacturing facilities are located in close proximity to its customers’ plants in all the
key auto clusters in India with dedicated facilities for key customers. Currently it is in
process of commissioning 5 more manufacturing facilities in India. The company has
incurred ~Rs5bn capex over the last 4 years for the capacity addition. Out of this
~Rs2.5bn capex is yet to start generating sales for the company. The company expects
Rs2.5bn capex has a potential to generate ~Rs6bn annual sales going forward

Exhibit 9 : Commissioned Facilities

S.No. Location Division Products Manufactured
1 Gurugram Automotives Lock assembly, door handles, latches and switch assembly
2 Gurugram Automotives Mirror assembly and moulded parts
3 Gurugram Components Sheet metal components
4 Gurugram HSCI Door handles, lock assembly and side view mirrors
5 Gurugram Components Zinc die casting
6 Gurugram Subsidiary Tools and dies
7 Haridwar Automotives Locking systems, rear-view mirrors systems, door handles, latches
8 Bawal Components Aluminium die casting parts
9 Bawal Components Plastic moulding parts
10 Nalagarh Automach Wheel rims , wheel assemblies, handle bars, clutch and brake panels
11 Alwar HSCI Door handles, lock assembly, and side view mirror
12 Indore Joint Venture Commercial tooling
13 Pune Automotives Mirror assembly, lock assembly, and handle assembly
14 Pune Components Television cabinets and air conditioners cabinets
15 Pune Cabins and fabrications Cabins, welded assembly for cabins
16 Bengaluru Components Zinc die casting and moulding parts
17 Bengaluru Automotives Lock assembly, mirror assembly, handle assembly, latches, and switches
Backhoe loader cabins and cabin loose parts, operator cabins, motor-grader cabin,
18 Bengaluru Cabins and fabrication
dozers cabins, cabin for dump trucks including floor plate
Backhoe loader cabins and cabin loose parts, operator cabins, motor-grader cabin,
19 Bengaluru Cabins and fabrication
dozers cabins, cabin for dump trucks including floor plate
Motor cycle rims, moped rims, scooter rims, clutch assembly, handle bar
20 Bengaluru Automach
assembly, wheel assemblies for motor cycles, mopeds and scooters
Wheel rims and wheel assemblies, handle bars, clutch and brake panels, and
21 Mysuru Automach
fender assemblies
22 Chennai Automach Wheel rims and wheel assemblies, handle bars, clutch and brake panels
23 Gurugram Fuel sender Fuel senders / sensors
24 Oragadam, Chennai Automach Assembly of rims
25 Gurugram Automotives Relays
Source: Company RHP

5
 April 12, 2018

Sandhar Technologies
S.No. Location Division Products Manufactured
26 Gurugram After market Packaging of products for after-market sales
Press parts for application in relays, motors and tools, injection moulded parts for
27 Gurugram Joint Venture application in sensors, connectors, switches, vehicle relays, lamps, windshield
wipers and switches
28 Oragadam, Chennai Joint Venture Assembly of AVN panels, and switches
29 Oragadam, Chennai Joint Venture High precision press parts, and insert moulded contact plates
Wheel rims and wheel assemblies, handle bars, clutch and brake panels, and
30 Hosur Automach
fender assemblies
Cabins and fabrication
31 Jaipur Parts and components for off-highway vehicles
division

Facilities to be commissioned
Cabins and cabin loose parts, operator cabins for off-highway vehicles, aluminium
Components, and cabins
1 Oragadam, Chennai die casting components, machining and powder coating of aluminium die casting
and fabrication
parts
2 Hosur Components Aluminium die casting parts
3 Oragadam, Chennai Components Aluminium die casting parts
4 Gurugram Joint Venture Fuel filters and fuel modules, starter motors, wipers
5 Gurugram Joint Venture Safety helmets and other headgears for two-wheelers

Facilities outside India

1 Spain ST Barcelona Aluminium spools and spindles
2 Spain ST Barcelona Aluminium spools and spindles
3 Mexico ST Mexico Aluminium spools and spindles
Source: Company RHP

New Business Ventures to Drive Growth Post 2020

Apart from its existing core business, Sandhar has been planning to develop new
business segments. It has established following joint ventures and technical
collaborations to enter into new product categories. These ventures are likely to
become operational and start contributing meaningfully post 2020. These JVs not only
add new revenue stream but will further diversify its revenue stream towards 4W
segment. The Company plans similarly JV in future which is likely to add further
products to its stable.

Exhibit 10: Sandhar Joint Ventures and Collaborations

Name of JV JV Partner Opportunity
Manufacturing of
With fuel injection systems being the best solution for
fuel pumps & oil
Sandhar BS-6 norms, this will increase it content supplied to
filters (for 2W fuel
Daewha 2W industry. The approximate size of fuel pumps
injection
likely to be ~Rs15 bn based on current 2w production
systems)
Jinyoung Assembly of AVN AVN panel opportunity is large -Supplies likely to be
Sandhar Panels and Switches to Honda, Hyundai & Kia Etc.
New regulations make Rear Parking Sensor, Camera
Sandhar Rear Parking Sensor, compulsory for all cars manufactured post July 2019.
Whetron Camera The company aiming for 15-20% market share,
wherein Whetron is a global leader in this product.
Sandhar
Rider Helmets and Manufacture of Safety Rider Helmets and other
Amkin
other Headgears headgears for Two-Wheelers
Industries
Source: Company RHP

6
 April 12, 2018

Sandhar Technologies

IPO Proceeds to Reduce Debt and Interest Outflow

Sandhar has raised ~Rs3.5bn through recent IPO. Out of this IPO proceeds, the
Company has utilized Rs2.25bn for the repayment of its existing debt. Due to
repayment, overall debt is likely to come down from Rs3.9bn in Sept 2017 to Rs1.7bn.
Substantial reduction in debt is likely to reduce interest out-flow in a major way for
Sandhar going forward.

Exhibit 11: Debt and Interest Payment Trend

FY17 FY18E FY19E FY20E
Net Debt (Rs mn) 3852 781 538 (234)
Interest (Rsmn) 427 465 247 100
Source: Company RHP, Karvy Stock Broking

Net Margins to Expand from 3.5% to 5.8% - Profit to Double over FY18-20
Based on following assumptions we believe Sandhar is set to report PAT margin
expansion 228bps over FY18-20E from 3.5% to 5.8%.
 Sales CAGR of 18.7% over FY18-20E
 EBITDA Margin Expansion of 70bps over FY18-20E
 Debt repayment of Rs2.25bn in FY18
 Tax rate increasing from 20% to 30% over FY18-20E
The company is expected to report earnings CAGR of 52.2% over FY18-20E resulting in
profits doubling over the same period.

Exhibit 12: Sandhar Key Financial Metrics

Key Financial Metrics FY17 FY18E FY19E FY20E bps improvement
Sales 16,269 19,358 23,432 27,267
EBITDA 1,458 2,070 2,578 3,108
% of Sales 9.0% 10.70% 11.00% 11.40% 70bps
Depreciation 603 679 742 800
% of Sales 3.7% 3.5% 3.2% 2.9% 57bps
Other Income 72 51 68 57
% of Sales 0.4% 0.3% 0.3% 0.2%
Interest 427 465 247 100
% of Sales 2.6% 2.4% 1.1% 0.4% 203bps
PBT 500 978 1,658 2,265
% of Sales 3.1% 5.1% 7.1% 8.3%
Tax 99 293 497 679
% of Sales 0.6% 1.5% 2.1% 2.5% -98bps
Tax Rate 20% 30% 30% 30%
PAT 401 685 1,160 1,585
% of Sales 2.5% 3.5% 5.0% 5.8% 228bps
Source: Karvy Stock Broking

7
 April 12, 2018

Sandhar Technologies

Competitive Strengths
Long standing and growing relationships with major OEMs – Sandhar with its
management expertise has built long-standing relationships with 79 Indian and global
OEM customers, which include some leading companies such as Ashok Leyland,
Doosan Bobcat, Escorts, Hero, Honda Cars, Komatsu, Scania, TAFE, Tata Motors, TVS,
UM Lohia, and Volvo. The Company generates ~65-70% of its total revenues from top 5
Auto OEMs.
Exhibit 13: Top 5 Customer Revenue Contribution (in %)
Name of
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Sep-17
customer
Hero 31.67 32.47 30.46 29.86 28.20 29.25
TVS 19.69 17.28 17.30 17.37 20.12 23.63
Honda 4.04 5.39 8.74 10.35 8.02 8.49
Bosch 5.86 6.21 5.85 5.41 5.50 4.83
Royal Enfield(*) - - - - - 4.07
Global
Automotive
4.33 5.25 4.45 4.87 5.31 -
Component
Supplier(**)
Source: Company RHP

Diversified Product Portfolio – The Company commenced its business by

manufacturing sheet metal components and scaled up to 21 categories of products
including safety and security systems such as lock assemblies, mirror assemblies,
operator cabins for off-highway vehicles, aluminium spools, spindles, and hubs and
other product categories including wheel assemblies, handle bar assemblies, brake
panel assemblies, sheet metal components such as fuel filler caps, fuel cock assembly,
step pillions, tools, dies, moulds, other aluminium components, crane and tractor parts,
plastic and painted parts such as door handles (inner and outer), panels for televisions,
and cabinets for air conditioners. The Company works closely with the customers from
early of design and product development to engineering and manufacturing which has
enabled it to increase the wallet share from the existing OEM customers.

Production facilities close to the customer plant – Presently, Sandhar has 32

manufacturing facilities located in key Auto clusters across Gurgaon, Haridwar, Bawal,
Bengaluru, Alwar, Chennai, Hosur, Indore, Mysore, Nalagarh & Pune and two
manufacturing facilities in Spain and one manufacturing facility in Mexico. The close
proximity to customers has helped the company to leverage its relationships with Key
OEMs has opened up the opportunity to cross sell multiple products offerings.

In-house R&D, Design capability and technical collaborations – Based out of

Sandhar Centre for Innovation & Development (R&D) in Gurugram, Sandhar has in-
house R&D team of 35 engineers which is into development of new products,
designing, prototyping, and product upgrades. SCID was granted two patents related
to combined braking systems for hand brakes operated by scooters and motorcycles.

8
 April 12, 2018

Sandhar Technologies

Risks
Dependence on Two-Wheeler Market – The Company generates ~55% of its revenues
from two-wheelers (Hero, TVS and Eicher – 54% market share). Any slowdown in this
category can impact the volumes for Sandhar.

Rising Raw-material Costs – Zinc, sheet metal parts and aluminum accounted for
~41% and purchases from vendors were ~28% of the total raw material costs for FY17.
Any abrupt change in the prices of these material may impact Sandhar’s margins.

Demand for Driver Cabins depends on the OHV Market – The Company generates
~10% of its revenues from manufacturing of OHV cabins. Overall the Construction and
Equipment is set to grow due to rising agricultural output and increase in MSP by the
Central Government. Any decline in OHV volumes will likely impact the revenues for
the company.

9
 April 12, 2018

Sandhar Technologies

Relative Valuation

Exhibit 14: Financial Matrix

Sales (Rs mn) EBITDA (Rs mn) EBITDA (%) PAT (Rs mn)
Company
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Sandhar Technologies 19,358 23,432 27,267 2,070 2,578 3,108 10.7 11.0 11.4 685 1,160 1,585
Minda Industries 43,136 54,795 63,745 5,151 6,808 8,068 11.9 12.4 12.7 2,415 3,167 3,654

Minda Corp 31,028 35,357 42,037 2,961 3,762 4,875 9.5 10.6 11.6 1,459 1,997 2,788

Endurance Technologies 63,487 72,201 88,664 8,905 10,386 13,321 14.0 14.4 15.0 3,827 4,846 6,784
Source: Karvy Stock Broking, Bloomberg

Exhibit 15: Valuation Matrix

Stock Price Mkt Cap PE (x) EV/EBITDA (x) ROE (%)
Company
(Rs) (Rs mn) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Sandhar Technologies 372 22,391 32.7 19.3 14.1 11.2 8.9 7.1 14.3 16.8 20.4
Minda Industries 1,134 98,329 40.7 31.1 26.9 19.6 14.8 12.5 21.6 23.1 21.1
Minda Corp 179 37,466 25.1 18.4 13.4 14.3 11.3 8.7 20.0 22.7 26.0
Endurance Technologies 1,352 190,172 49.1 39.3 28.1 21.6 18.5 14.4 20.0 21.3 23.6
Source: Karvy Stock Broking, Bloomberg

Outlook and Recommendation

Attractive Valuations – BUY

Sandhar is among the top five diversified auto ancillary listed entities in India. It has
exhibited steady and consistent operating history. We believe, Sandhar has now
entered into a high growth phase wherein its sales and PAT are expected to grow at
18.7% and 52.2% over FY18-20E respectively. Further we believe, JVs will enable
sustenance of growth beyond FY20E. We initiate coverage on Sandhar with a BUY
rating and target price of Rs474 (PER of 18xFY20E earnings - ~20% average discount to
peers) on the back of 20% ROE and debt free credentials.

10
 April 12, 2018

Sandhar Technologies
Financial Performance
18.7% Sales CAGR through FY18-20E
We expect Sandhar to report 18.7% sales CAGR through FY18-20E on account of a) 2W segment (~55% of sales) is
expected to grow at ~12% CAGR on account of combination of overall 2W industry growth in India, Sandhar’s shift
towards introducing premium products (Smart locks, ORVM mirrors etc ) resulting in increase in content per vehicle
and its recent entry in scooter segment b) Honda Cars (~10% of sales) and operator cabin (~10% of sales) business
segments are expected to grow at ~20% and ~45%+ CAGR based on likely performance of Honda Cars and JCB India
and C) Component business (~14% of sales) is likely to grow at ~30%+ CAGR as capacity addition in Aluminum Die
casting to aid growth.
Exhibit 16: Sandhar Annual Sales

Net Sales (Rs mn)

30,000 27,267

25,000 23,432

19,358
20,000
16,269
14,821 15,132
15,000

10,000

5,000

0
FY15 FY16 FY17 FY18E FY19E FY20E

Source: Karvy Stock Broking

EBITDA Margins to expand by 70bps over FY18-20E

Sandhar is expected to report 10.7% EBITDA margins in FY18. We conservatively estimate 70bps margin expansion
over FY18-20E on account of a) operating leverage benefit (~40% increase in revenue base over FY18-20) and b) higher
sales contribution from relatively high margin business like locks, mirrors, Honda business and operator cabin
segment. The company is expected to achieve EBITDA margins of 11% and 11.4% in FY19 and FY20 respectively.

Exhibit 17: Sandhar EBIDTA Margins (%)

EBIDTA Margin (%)

13.0%
12.5%
12.0% 11.4%
11.5% 11.0%
11.0% 10.7%
10.5%
10.0%
9.4% 9.3%
9.5% 9.0%
9.0%
8.5%
8.0%
FY15 FY16 FY17 FY18E FY19E FY20E
Source: Company, Karvy Stock Broking
11
 April 12, 2018

Sandhar Technologies
PAT to grow at 52.2% CAGR over FY18-20E
Sandhar is expected to report 52.2% PAT CAGR over FY18-20E on account of 18.7% sales CAGR and 70bps EBITDA
margin expansion,. The Company is expected to report PAT of Rs 1.2bn and Rs1.6bn in FY19E and FY20E respectively.

Exhibit 18: Sandhar PAT Growth

PAT (Rs mn)

1,800
1,585
1,600
1,400 1,160
1,200
1,000
800 685

600
384 375 401
400
200
0
FY15 FY16 FY17 FY18E FY19E FY20E

Source: Company, Karvy Stock Broking

ROE and ROCE to Expand

Sandhar is expected to report ROE of 16.8% and 20.4% and ROCE of 16.7% and 19.6% in FY19E and FY20E respectively on
account on 18.7% sales and 52.2% PAT CAGR over FY18-20E.

Exhibit 19: Sandhar ROE and ROCE (%)

ROCE ROE

24.0%

22.0%
20.4%
20.0%
16.8%
18.0% 16.5% 19.6%
14.3%
16.0%
14.1% 13.9% 16.7%
14.0% 15.0%
14.8%
12.0% 13.5%
12.8%
10.0%
FY15 FY16 FY17 FY18E FY19E FY20E
Source: Karvy Stock Broking

12
 April 12, 2018

Sandhar Technologies

Healthy Cash Generation

We expect the company to generate operating cash of Rs1.8bn and Rs2.3bn and free cash of Rs 952mn and Rs1.39bn in FY19E
and FY20E respectively.

Exhibit 20: Cash Flows

Free cash Flow (Rs mn)

2,500
2,195
2,000
1,234 1,512
1,500 1,310 1,345

1,000 820
662
420
500 234
90
0
FY15 FY16 FY17 FY18E FY19E FY20E
(500)
(436)  (602)
(1,000)

Source: Company, Karvy Stock Broking

Financials
Exhibit 21: Income Statement
Y/E Mar (Rs Mn) FY15 FY16 FY17 FY18E FY19E FY20E
Net Sales 14,821 15,132 16,269 19,358 23,432 27,267
YoY (%) 17.2 2.1 7.5 19.0 21.0 16.4
Raw material cost 9,080 9,014 9,512 11,125 13,466 15,670
Employee Cost 1,843 2,018 2,354 2,667 3,156 3,564
Admin Expenses 2,507 2,686 2,945 3,496 4,232 4,925
Total expenses 13,429 13,719 14,811 17,288 20,854 24,158
EBIDTA 1,391 1,413 1,458 2,070 2,578 3,108
EBIDTA Margin (%) 9.4 9.3 9.0 10.7 11.0 11.4
Depreciation 524 552 603 679 742 800
EBIT 868 862 855 1,392 1,836 2,309
Interest 410 424 427 465 247 100
Other income 57 52 72 51 68 57
PBT 514 490 500 978 1,658 2,265
(-) Tax 130 115 99 293 497 679
Tax/ PBT 25.3 23.4 19.8 30.0 30.0 30.0
PAT 384 375 401 685 1,160 1,585
Extraordinary Items - 37.4 5.1 - - -
Reported PAT 384 412 406 685 1160 1585
Source: Company, Karvy Stock Broking

13
 April 12, 2018

Sandhar Technologies

Exhibit 22: Balance Sheet (Rs Mn)

Y/E Mar (Rs Mn) FY15 FY16 FY17 FY18E FY19E FY20E
Equity capital 102 512 512 602 602 602
Reserves 2,490 2,225 2,502 5,933 6,674 7,687
Net worth 2,592 2,736 3,013 6,535 7,276 8,289
Total Loans 3,090 3,192 3,925 1,675 1,175 275
Deferred Tax Liability 103 74 73 73 73 73
Total Liabilities 5,785 6,002 7,012 8,283 8,524 8,637
Gross block 7,163 8,224 9,446 10,446 11,296 12,146
Less: Acc. depreciation 2,401 2,940 3,482 4,161 4,902 5,702
Net block 4,762 5,284 5,964 6,285 6,393 6,444
Work in progress 405 552 292 292 292 292
Investments 30 41 41 41 41 41
Inventories 1,572 1,598 1,671 2,137 2,656 3,091
Debtors 1,891 1,681 2,111 2,256 2,889 3,362
Cash 73 60 73 894 637 509
Loans and advances 393 413 440 524 634 738
Current assets 3,928 3,753 4,295 5,811 6,816 7,700
Current liabilities 3,211 3,534 3,442 3,982 4,820 5,609
Provisions 129 95 138 165 199 232
Net current assets 588 124 714 1,664 1,797 1,860
Total Assets 5,785 6,002 7,012 8,283 8,524 8,637
Source: Company, Karvy Stock Broking

Exhibit 23: Cash Flow

Y/E Mar (Rs Mn) FY15 FY16 FY17 FY18E FY19E FY20E
Net profit 384 337 396 685 1,160 1,585
Depreciation 524 552 603 679 742 800
Deferred tax (22) (31) - - - -
Change in W/C (66) 452 (578) (129) (390) (190)
Operating cash flow 820 1,310 420 1,234 1,512 2,195
Capex (1,256) (1,220) (1,022) (1,000) (850) (850)
Investments - (11) - - - -
Investing cash flow (1,256) (1,231) (1,022) (1,000) (850) (850)
Free Cash Flow (436) 90 (602) 234 662 1,345
Dividend (111) (217) (95) (164) (419) (572)
Equity 248 24 (24) 3,000 - -
Debt 345 102 733 (2,250) (500) (900)
Financing cash flow 482 (92) 615 586 (919) (1,472)
Net change in cash 46 (12) 13 821 (257) (127)
Opening cash 27 73 60 73 894 637
Closing cash 73 60 73 894 637 509
Source: Company, Karvy Stock Broking

14
 April 12, 2018

Sandhar Technologies
Exhibit 24: Key Ratios
Valuation Ratios FY15 FY16 FY17 FY18E FY19E FY20E
EPS 7.5 7.3 7.8 11.4 19.3 26.3
Book value 51 53 59 109 121 138
P/E (x) NA NA NA 32.7 19.3 14.1
EV/EBDITA (x) NA NA NA 11.2 8.9 7.1
P/B (x) NA NA NA 3.4 3.1 2.7
EV/Sales NA NA NA 1.2 1.0 0.8
Performance Ratios FY15 FY16 FY17 FY18E FY19E FY20E
ROCE 14.8 13.5 12.8 15.0 16.7 19.6
ROE 16.5 14.1 13.9 14.3 16.8 20.4
Free cash/Share -21.3 0.9 -5.9 1.9 5.5 11.2
Avg Net WC Days 12 7 8 13 15 17
Net W/C (% of sales) 3.5 0.4 3.9 4.0 5.0 5.0
Source: Company, Karvy Stock Broking

15
 April 12, 2018

Sandhar Technologies

Stock Ratings Absolute Returns

Buy : > 15%
Hold : 5-15%
Sell : < 5%

For further enquiries please contact:

[email protected]
Tel: +91-22-6149 1500

Disclosures Appendix
Analyst certification
The following analyst(s), Mahesh Bendre, who is (are) primarily responsible for this report and whose name(s) is/are
mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about
the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or
indirectly related to the specific recommendation(s) or views contained in this research report.

Disclaimer
Karvy Stock Broking Limited [KSBL]is registered as a research analyst with SEBI (Registration No INH200003265 ).
KSBL is also a SEBI registered Stock Broker, Depository Participant, Portfolio Manager and also distributes financial
products. The subsidiaries and group companies including associates of KSBL provide services as Registrars and
Share Transfer Agents, Commodity Broker, Currency and forex broker, merchant banker and underwriter,
Investment Advisory services, insurance repository services, financial consultancy and advisory services, realty
services, data management, data analytics, market research, solar power, film distribution and production, profiling
and related services. Therefore associates of KSBL are likely to have business relations with most of the companies
whose securities are traded on the exchange platform. The information and views presented in this report are
prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on
information obtained from public sources , the respective corporate under coverage and sources believed to be
reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The report
and information contained herein is strictly confidential and meant solely for the selected recipient and may not be
altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or
reproduced in any form, without prior written consent of KSBL. While we would endeavor to update the information
herein on a reasonable basis, KSBL is under no obligation to update or keep the information current. Also, there may
be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on
investment may vary because of changes in interest rates, foreign exchange rates or any other reason. This report and
information herein is solely for informational purpose and shall not be used or considered as an offer document or
solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all
the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat
recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your
specific circumstances. This material is for personal information and we are not responsible for any loss incurred
based upon it. The investments discussed or recommended in this report may not be suitable for all investors.
Investors must make their own investment decisions based on their specific investment objectives and financial
position and using such independent advice, as they believe necessary. While acting upon any information or
analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL
accepts any liability arising from the use of information and views mentioned in this report. Investors are advised to
see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Past
performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and
may be subject to change without notice. Actual results may differ materially from those set forth in projections.

16
 April 12, 2018

Sandhar Technologies
 Associates of KSBL might have managed or co-managed public offering of securities for the subject company or
might have been mandated by the subject company for any other assignment in the past twelve months.

 Associates of KSBL might have received compensation from the subject company mentioned in the report
during the period preceding twelve months from the date of this report for investment banking or merchant
banking or brokerage services from the subject company in the past twelve months or for services rendered as
Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and
underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services,
realty services, data processing, profiling and related services or in any other capacity.

 KSBL encourages independence in research report preparation and strives to minimize conflict in preparation
of research report.

 Compensation of KSBL’s Research Analyst(s) is not based on any specific merchant banking, investment
banking or brokerage service transactions.

 KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a
financial interest in the securities or derivatives of any companies that the analysts cover.

 KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the
Company mentioned in the report as of the last day of the month preceding the publication of the research
report.

 KSBL or its analysts did not receive any compensation or other benefits from the companies mentioned in the
report or third party in connection with preparation of the research report and have no financial interest in the
subject company mentioned in this report.

 Accordingly, neither KSBL nor Research Analysts have any material conflict of interest at the time of
publication of this report.

 It is confirmed that KSBL and Research Analysts, primarily responsible for this report and whose name(s) is/
are mentioned therein of this report have not received any compensation from the subject company mentioned
in the report in the preceding twelve months.

 It is confirmed that Mahesh Bendre, Research Analyst did not serve as an officer, director or employee of the
companies mentioned in the report.

 KSBL may have issued other reports that are inconsistent with and reach different conclusion from the
 information
Associatespresented in thishave
of KSBL might report.
managed or co-managed public offering of securities for the subject company or
might have been mandated by the subject company for any other assignment in the past twelve months.
 Neither the Research Analysts nor KSBL have been engaged in market making activity for the companies
 mentioned
Associatesin of
theKSBL
report.
might have received compensation from the subject company mentioned in the report
during the period preceding twelve months from the date of this report for investment banking or merchant
 We submitor
banking that no material
brokerage disciplinary
services from theaction hascompany
subject been taken on KSBL
in the by anymonths
past twelve Regulatory Authority
or for services impacting
rendered as
Equity Research
Registrar and Analyst activities.
Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and
underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services,
realty services, data processing, profiling and related services or in any other capacity.

 KSBL encourages independence in research report preparation and strives to minimize conflict in preparation
of research report.
Karvy Stock Broking Limited
 Office No.of 701, 7 Floor, Hallmark Business Plaza,
is notOpp.-Gurunanak
based on any Hospital,
specific Mumbai 400banking,
051
th
Compensation KSBL’s Research Analyst(s) merchant investment
RegdOff : PlotorNo.31,
banking 6th Floor,
brokerage Karvytransactions.
service Millennium Towers, Financial District, Nanakramguda, Hyderabad, 500 032, India
Karvy Stock Broking Research is also available on: Bloomberg - KRVY <GO>, Thomson Publisher & Reuters.

 KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a
financial interest in the securities or derivatives of any companies that the analysts cover.

 KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the
Company mentioned in the report as of the last day of the month preceding the publication of the research
report.

17
 KSBL or its analysts did not receive any compensation or other benefits from the companies mentioned in the
report or third party in connection with preparation of the research report and have no financial interest in the