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Valuation and View

Sona BLW (SONACOMS) 4QFY23 results were better as revenue/EBITDA/Adj PAT exceeded our/street estimates by 4.9%/8.6%/12.2% and 4%/7%/16.5% respectively. EBITDA margins came in better at 26.9% (est 26%). This was largely led by better revenue execution as well as cost control as anticipated decline in RM doesn’t materialize as gross margins contracted ~90bp QoQ at 54.2%. On the positive side, the key highlight of the quarter was the new order win to supply, final drive differential assemblies, intermediate gears and input shafts for upcoming EV Class 4 truck from North American customer worth Rs5b with an SOP expected in 4QFY24. It will be co’s first EV CV entry ever. However, new order addition at Rs5b was lower than expected (v/s Rs42b/ Rs4b/ Rs28b orders added in previous 3 quarters). Co’s overall orderbook stands at Rs215b as of FY23 (v/s Rs238b in Dec’22 and Rs186b as of Mar’22). Sona’s EV revenue mix during FY23 increased to ~26% (v/s ~23% in Sep’22).

The management guided majority of new programs would go into production in six months. 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 32?46% CAGR over FY23?25E. We increase our FY24E/25E EPS by 5?8% each as we build in faster execution of recently added orders. We believe Sona should outperform the industry driven by i) strong EV
orderbook (~77% 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 maintain BUY on the stock with TP at Rs581 (v/s Rs539 earlier).

Result Highlights? Result exceed expectations for 2nd consecutive quarter

* Consol revenue grew 10% QoQ/35% YoY at Rs7.4b (est Rs7.1b). Share of BEV continues to improve to ~28% of revenues at Rs2.03b (+37% YoY). For FY23, BEV revenues grew by 1.3x to Rs6.7b (v/s Rs5b in FY22) with FY23 share at 26% (v/s 25% in FY22).
* Gross margins came in lower at 54.2% (est 55%, ?90bp YoY and QoQ) offset by lower than expected staff cost at Rs455m (est Rs540m, ?5% QoQ).
* Consequently, EBITDA came in better at Rs2b (+13.3% QoQ/+47.7% YoY, est Rs1.84b/cons Rs1.82b) led to margins expansion of 80bp QoQ at 26.9% (est 26%).
* Led by healthy op performance and lower tax at 20% (est 23.5%), adj.PAT beat came in at Rs1.22b (+17% YoY/+14.4%QoQ, est Rs1.1b).
* FY23 performance – Revenues/EBITDA/Adj.PAT grew 25.6%/24.4%/13.5%.

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