Sandhar's Big Gamble: New Ventures Fuel Growth

Sandhar Technologies is strategically investing Rs 341 crore in new projects, including aluminium die casting, sheet metal, cabins, fabrication, and EV powertrain components. These initiatives aim to expand its business beyond traditional auto components. In Q1 FY27, consolidated revenue increased by 26.77% to Rs 1,381.89 crore, but EBITDA margins saw a decline. This pressure is attributed to higher wage and energy costs, alongside initial losses from new ventures. The company's core Indian business also faces increased input and employee costs, impacting its margins. Sandhar's expansion in aluminium die casting, with a new facility in Hosur targeted for completion by March 2027, and sheet metal projects in Chennai, are key to its growth. The nascent EV business is expected to reach turnaround by FY28. Management has set a conservative FY27 revenue growth target of over 15%, with a long-term ambition to double revenue every three to four years. Capital expenditure is projected to remain high, between Rs 275 crore and Rs 310 crore for FY27. The company's balance sheet shows increased borrowings and a widening cash conversion cycle, necessitating careful monitoring of receivables and inventory. Overseas operations, while improving EBITDA, still report an EBT loss, with efforts focused on improving utilization and profitability. The company carries significant goodwill related to its aluminium die-casting unit, contingent on future cash flows. Consolidated ROCE was 12.3% in FY26, with a target to reach 15% to 20%. Trading at approximately 19 times earnings, Sandhar's valuation relies on the successful transition of new ventures into profitable entities.