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Company Background

Sona BLW Precision Forgings Limited (“Sona Comstar”) was incorporated on October 27, 1995. Sona Comstar is one of India’s leading automotive technology companies, designing, manufacturing and supplying highly engineered, mission critical automotive systems and components such as differential assemblies, differential gears, conventional and micro-hybrid starter motors, BSG systems, EV traction motors (BLDC and PMSM) and motor control units to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments. Sona Comstar is among the top 10 players globally in the differential bevel gear market. They are also among the top 10 global starter motor suppliers based on their exposure to the PV segment in calendar year 2020. They are gaining global market share across products to reach a share of approximately 5% for differential bevel gears, 3% for starter motors and 8.7% for Battery electric vehicle (“BEV”) differential assemblies, in calendar year 2020.

Sona Comstar has 9 manufacturing and assembly facilities across India, China, Mexico and USA, of which 6 are located in India and they have 8 warehouses, of which, 5 are located in India and 3 across USA, Germany, and Belgium. Company’s global OEM customer portfolio includes a Global OEM of EVs, a North American OEM of PVs and CVs, Ampere Vehicles, an Indian OEM of PVs, CVs and EVs, Ashok Leyland, CNH, Daimler, Escorts, Escorts Kubota, Geely, Jaguar Land Rover, John Deere, Mahindra and Mahindra, Mahindra Electric, Maruti Suzuki, Renault Nissan, Revolt Intellicorp, TAFE, Volvo Cars and Volvo Eicher. They also serve selected leading Tier 1 automotive system suppliers such as Carraro, Dana, Jing-Jin Electric, Linamar and Maschio.

They are a global supplier and derive 75% of their income from sale of goods with end-use in the overseas markets, including 36.1% in North America, 26.5% in Europe and 7.6% in China and 25% from sale of goods with end-use in India, for Fiscal 2021. They are also one of the two largest exporters of starter motors from India.

Offer Summary:

The company is planning an issue size of equity shares (Fresh issue of upto 194,736 (000)-190,721 (000) equity shares aggregating ₹55.5 bn out of which Offer for Sale is of upto ₹52.5 bn. The OFS is by its two promoters i). Part sale by Blackstone backed Singapore VII Topco II Pte.Ltd and ii). Sona Autocomp Holding Pvt Ltd. The issue size will be ₹52.5bn with FV of ₹10. The price band is of ₹285-291 and the lot size is 51 and in multiples thereof. Post issue implied market cap will range between ₹166-170 bn. The issue opens on 14th June and closes on 16th June 2021. The objects of this issue are – 1. Repayment/prepayment, in full or part, of certain borrowings availed of by the company 2. General corporate purpose.

Profitability – globally the best

Sona Comstar is a consistent performer as far as its profitability is concerned. It has been reporting the most robust margins, ROE and ROCE among the entire listed auto component space in the Indian industry. Despite spending maximum on R&D expenses when viewed as a % of sales, the company with its strong engineering prowess, improving content per vehicle, hedging its risk geographically as well as product offerings and segment wise has maintained its operating margins in the 26-28% range. Going forward with EV proliferation we believe the company can report even better margins with improving utilization rates (which have temporarily gone down in FY 21 due to pandemic) will rise again due to operating leverage.

Outlook and Valuation:

Despite its rich valuations, considering its visibility of topline growth, competitive edge, superior profitability as compared to peers, prudent cost management, return ratios, wide clientele spread across the globe, sound R&D base and technological progress, we recommend investors to SUBSCRIBE to this IPO of Sona Comstar for Long-Term.

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