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Sona BLW Precision Forgings Ltd (SBPFL) is one of the leading critical auto components manufacturer globally with thrust on the EV segment.

One of the leading player in global EV market with growing market share:

SBPFL started supplying differentiated gears/ assemblies in the global EV market since 2016/2018 and has garnered 5%/8.7% market share (as of CY20). These two products currently contribute 46% of revenues while balance 51% comes from starter motors (SM; both Hybrid and conventional). In SM it has 3% market share globally. Global EV and Micro-Hybrid/Hybrid markets form 41% of revenue (18% in FY19) while conventional powertrains constitutes the remaining. Given government’s thrust globally and changing customer preferences, EV and mild hybrid sales are expected to grow 5x by 2025, accounting for 33% global production (8% currently), thus presenting huge opportunity for SBPFL.

Well diversified portfolio across categoriesto tap future growth:

Apart from being well-diversified across products catering to all types of conventional and electrified powertrains, SBPFL is also diversified across geographies and vehicle segments. It derives 68% revenue from PVs while CVs/off highway vehicles form 14%/17%. On the other hand, exports form 75% of revenue (across North America/Europe/China/others) while balance comes from India. Given GOI’s thrust on EV, demand for electric 2-wheelers/3-wheelers in India is expected to grow at 72-74%/46% CAGR during FY21-26, which could benefit SBPFL in big way.

Healthy Financials:

Over FY18-21, SBPFL’s Revenue/EBITDA/Adj. PAT grew at a robust CAGR of 36%/37%/39% given its thrust in global EV market while EBITDA margins expanded 76bps to 28.2%. Its margins are much superior visa-vis peers given its critical component products. The net D/E stood at 0.3x as of FY21, which post repayment, would reduce to zero. Return ratios are healthy with FY21 RoE/RoCE at 16.5%/15.3%.

Issue Size:

The INR55.5bn IPO consists of OFS (by Blackstone PE) of INR52.5bn and fresh issue of INR3.0bn which would result in promoter’s stake reducing to 67.3% post-IPO. The funds will be utilized to repay debt of INR2.4bn, with the balance reserved for general corporate purpose.

Valuation & View:

We like SBPFL given its presence in fast growing global EV market, diversified portfolio across categories and robust financials. The issue is valued at 74.1x FY21 P/E on post issue basis. Though the valuation appears fully priced in, given its thrust in fast evolving EV space both in India and globally, market would like to give premium to such emerging growth story. Hence, we recommend Subscribe for Long Term.

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