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Results exceed expectations; comments mixed

Valuation and View  

Sona BLW 2QFY23 results were better Revenue/EBITDA/Adj PAT came in better by 5.4%/6.7%/14% while margins came in above estimates at 24.7% (est 24.4%). This was largely led by decline in RM inflation. The key highlight of the quarter was the launch of net spiral gears which it will start supply to global farm OEM and later to PV OEMs. It has also added 1 new EV program (from existing customer in India) for high margin differential assembly v/s current supply of differential gears. Company’s overall orderbook remained steady QoQ at Rs205b as of Sep’22 (v/s Rs186b as of Mar’22). However, with inventory ramped down at its EV customer, Sona’s EV revenue mix during the quarter declined to ~21% in 2QFY23 (v/s ~29% in 1Q and ~25% in FY22).

The management guided majority of 27 new programs (though delay by 2?3 quarter for 2? 3 programs) would go in to production in six months. On the other hand, with RM headwinds receding, coupled with benefits of operating leverage should help margins expansion to 26.6% in FY23. Hence, we expectrevenue/EBITDA/Adj. PAT to grow 36?42% CAGR over FY22?24. Our FY23E/24E EPS are unchanged. We believe Sona should outperform the industry driven by i) strong EV orderbook (~67% mix), ii) increase in content/realization within existing products, iii) market share gains globally and iv) focus on new products like traction motors, controllers and BSG. We hence maintain BUY on the stock with TP at Rs610 (unchanged).  

Result Highlights? 

Results exceed expectations

* Consol revenue grew 11.8% QoQ/11.5% YoY at Rs6.5b (est at Rs6.2b, cons at Rs6.5b) driven by rapid scale up of orderbook. However, BEV revenue mix declined to 21% v/s 29% in 1Q (v/s ~25% in FY22) led by inventory ramped down at one of EV customer.

* Gross margins contracted 140bp QoQ at 52.7%. The decline was largely due to arithmetical effect and lag in steel price through.  

* However, this was partially offset by operating leverage due to ramp?up of recent order wins resulted in margins expansion of 120bp QoQ at 24.7% (est of 24.4%, cons at 24%). EBITDA came in better at Rs1.6b (+17% QoQ/+4.4% YoY).

* Adj. PAT came in better at Rs925m (+22% QoQ/+5% YoY, est at Rs812m, cons at Rs937m).

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