SAZEW 2024 target price raised
Sazgar Engineering Works Limited (SAZEW) has been making waves in the auto sector recently with its strategic moves and impressive performance.
Introduction of Haval SUV Brand:
- In August 2022, SAZEW partnered with Great Wall Motors (GWM), China’s 8th largest automobile manufacturer, to introduce the Haval SUV brand.
- This move has positioned SAZEW as a dominant player in the SUV market, complementing its existing 3-wheeler rickshaw brand and automotive parts segment.
Market Performance:
- Despite exponential returns in the last year, SAZEW trades at a compelling FY25PE of 5x, compared to the auto sector’s trailing PE of 10x.
- The SUV market, particularly the hybrid segment, has experienced significant growth, with SAZEW leading with a 45% share in the Hybrid SUVs market.
Expansion and Diversification:
- SAZEW’s partnership with GWM enables it to diversify its four-wheeler range, with plans to introduce electric cars under the ORA brand and luxury cruisers under the Tank brand.
- The company has also sanctioned the acquisition of additional land adjacent to its plant, indicating potential expansion in its production capacity.
Financial Strength:
- SAZEW’s revenue is predominantly driven by the four-wheeler segment, which has experienced exponential growth since the launch of the Haval H6 in December 2022.
- The company boasts the highest gross margins in the auto industry, reaching a peak of 22% in 2QFY24.
- Projected operating profit for FY25 is estimated to be Rs10bn, up 12% YoY, owing to its significant market share in the hybrid market.
Analysts’ Outlook:
- Analysts project a target price of Rs874 for SAZEW, indicating an upside potential of 78%.
- However, the company faces risks from competitors introducing superior hybrid SUVs, given its limited products in the four-wheeler segments.
The table is showing how Sazgar Engineering Works Limited’s (SAZEW) earnings per share (EPS) for FY25 are sensitive to different levels of SUV margins and units sold:
| SUV Margins | 2,500 Units | 3,000 Units | 3,500 Units | 4,000 Units | 4,700 Units | 5,000 Units |
|---|---|---|---|---|---|---|
| 18% | 49.9 | 58.1 | 66.2 | 74.3 | 86.9 | 90.6 |
| 19% | 53.0 | 61.6 | 70.3 | 78.9 | 92.2 | 96.1 |
| 20% | 56.1 | 65.2 | 74.3 | 83.4 | 97.5 | 101.7 |
| 21% | 59.3 | 68.8 | 78.4 | 88.0 | 102.8 | 107.2 |
| 22% | 62.4 | 72.4 | 82.5 | 92.5 | 108.1 | 112.7 |
| 23% | 65.5 | 76.0 | 86.6 | 97.1 | 113.4 | 118.2 |
| 24% | 68.6 | 79.6 | 90.6 | 101.7 | 118.7 | 123.7 |
| 25% | 71.7 | 83.2 | 94.7 | 106.2 | 124.0 | 129.2 |
These figures illustrate how changes in SUV margins and units sold can impact SAZEW’s earnings per share for FY25. Investors and analysts can use this information to evaluate potential scenarios and make informed investment decisions.
Here’s a table summarizing the key financial numbers for Sazgar Engineering Works:
| Key Numbers | FY21A | FY22A | FY23A | FY24E | FY25F |
|---|---|---|---|---|---|
| EPS (Rs) | 1.3 | 1.9 | 16.5 | 87.4 | 98.2 |
| PE (x) | 97.4 | 49.4 | 3.3 | 5.6 | 5.0 |
| P/BV (x) | 4.0 | 3.0 | 1.1 | 3.6 | 2.1 |
| ROE (%) | 4% | 6% | 34% | 64% | 42% |
Summary of Sazgar Engineering Works’ sales units and gross margin assumptions:
| Assumptions | FY23A | FY24E | FY25F |
|---|---|---|---|
| Sales Units | |||
| Three Wheelers | 9,381 | 13,022 | 15,626 |
| Four Wheelers | 1,827 | 4,338 | 4,772 |
| Gross Margin (%) | |||
| Three Wheelers | 1% | 1% | 1% |
| Four Wheelers | 12% | 20% | 21% |
Disclaimer:
The information in this article is based on research by Sherman. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.
Leave a Reply