Accumulate Sandhar Technologies; target of Rs 221: Dolat Capital

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Dolat Capital's research report on Sandhar Technologies

Sandhar Technologies’ Q4FY20 results were in line with our estimates. Consolidated revenue de-grew 31% YoY to Rs 4.08bn led by slowdown in 2W and OHV business. Consolidated EBITDA de-grew 44% to Rs 389mn with margin of 9.5% (-230bps YoY) due to negative operating leverage. We believe Sandhar would be a key beneficiary of quicker recovery in 2W led by rise in rural demand. 2W contributes 60% of overall revenue and major revenue comes from Hero and TVS Motors. Performance of the Barcelona subsidiary has improved in FY20. Revenue remain flat YoY and EBITDA margin improved to 12.7% (vs 10.3% YoY), due to new order wins, cost cutting measures and economies of scale. Despite the fall in revenue, management expect margin would be same level as FY20 led by cost cutting programs. Sandhar is not planning to incur any major capex over the next 24 months, which will help generate decent FCF.

Outlook

We roll forward our estimates to FY23E and forecast a 11% EPS CAGR over FY20-23E. We recommend Accumulate rating with a TP of Rs 221 (17x FY23E EPS).

For all recommendations report, click here

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