MMRFIC buy to help Sansera Engg expand hi-tech offerings: Nomura

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April 3, 2023
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Nomura’s report stated that the valuation of the acquisition (~5x FY24E sales) was reasonable

Sansera Engineering’s latest acquisition can help it diversify its business and create value for its shareholders, according to Nomura. Last week Sansera signed a deal to acquire unlisted MMRFIC Technology, which designs and makes subsystems for next-generation radars.

Nomura has a buy call on Sansera with a target price of Rs 1,014, which is nearly 36 per cent higher than the current market price (CMP). The stock was trading at around Rs 743 at 10 am on BSE today.

“The transaction will enable Sansera to expand its non-ICE (internal combustion engine) offerings. Sansera will leverage MMRFIC’s team and R&D experience in the radars segment to enter into the high technology space,” the brokerage report said, listing defense radars, autonomous driving, healthcare and aerospace as the new areas.

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Sansera will invest Rs 20 crore through compulsorily convertible preference shares (CCPS) and equity shares. On conversion, based on MMRFIC’s FY24 EBITDA, Sansera could own up to 21 percent in the unlisted company, with a right to further invest and raise its stake up to 51 percent.

Their report stated that the valuation of the acquisition (5x FY24 sales) was reasonable, considering three factors. One, there is potential to grow revenues significantly as more defence orders come through, given the government’s strong push in this area; two, the business is likely to be very high margin (peers making up to 30-40 percent margins), given it is a technology-driven business; and three, the longer term potential of new segments is high.

Also read: Sansera’s standalone net sales up 17% YoY in Q3FY23

“Sansera’s support can help MMRFIC invest in multiple segments at the same time. It will also be able to give engineering support to upgrade into a system integrator. Sansera can also help in building manufacturing capabilities and sales and service support. Thus, given the long-term potential in these segments, the investment can further diversify Sansera’s business and create value for shareholders over time,” the report said.