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Valuation and View

Sona BLW (SONACOMS) 1QFY24 results were better as while revenues were in-line, EBITDA/Adj PAT exceeded our/street estimates by 5-7%. EBITDA margins came in better at 27.7% (8 quarter high, est 26%, +80bp QoQ). This was led by favorable product mix as RM remained stable QoQ. On the positive side, the key highlight of the quarter was the new order wins in differential assembly for, 1) class 5 eCV (from new North American customer worth Rs4.05b with SOP by 4QFY25) and 2) Global OEM of recreational OHV (new customer worth Rs4.3b with SOP by 2QFY25). New order addition at Rs13b was still muted (v/s Rs5b/Rs42b/Rs4b/Rs28b orders added in previous 4 quarters). Co’s overall orderbook stands at Rs220b (v/s Rs215b as of FY23 and Rs186b as of FY22). Sona’s EV revenue mix during 1QFY24 were stable at 26%.

The management guided majority of new programs would go into production in 1-2 quarters. On the other hand, with RM headwinds receding, coupled with benefits of operating leverage should help margins expansion over FY23-25E. Hence, we expect revenue/EBITDA/Adj. PAT to grow 33-51% CAGR over FY23-25E. We increase our FY24E/25E EPS by 3-6% to build in higher than expected gross margins. We believe Sona should outperform the industry driven by i) strong EV orderbook (~78% mix), ii) increase in content/realization within existing products, iii) market share gains globally and iv) continues focus on new products launch followed by business wins. We downgrade the stock to ADD with TP at Rs654 (v/s Rs581 earlier) given limited upside led by recent sharp valuations expansion.

Result Highlights- Favorable product mix drive EBITDA margins

* Consol revenues grew 25.2% YoY (-1.5% QoQ) at Rs7.3b (in-line, cons Rs7.6b). Revenue impact of Rs250m (v/s budgeted) was there due to decline in EV 2W sales post FAME 2 subsidy cut. Expect FY24E revenue impact of Rs1-1.2b on revenues but commensurate impact on margins will be lower due to low margins profile of traction motors. BEV revenues grew 13% YoY at Rs1.84b (26% of revenue share).

* Gross margins expanded 280bp YoY/ 265bp QoQ at 56.9% (est 55.5%) partially offset by higher than expected other expense at Rs1.64b (+21.5% YoY/ +4.5% QoQ, est Rs1.57b). This was largely led by favorable product mix as RM was table.

* Consequently, EBITDA came in better at Rs2.03b (+47.3% YoY/ +1.3% QoQ), est Rs1.89b) led to margins expansion of 420bp YoY/ 80bp QoQ at 27.7% (est 26%). Led by steady operating performance, adj.PAT came in at Rs1.14b (+50.7% YoY/ - 6.8% QoQ, est Rs1.06b, cons Rs1.15b).

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