IPO Note - Sona BLW Precision Forgings Ltd By Nirmal Bang
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BACKGROUND
SBPF (Sona BLW Precision Forgings) is a leading automotive technology company 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. SBPF is among the top 10 players globally in the overall differential bevel gear market and the starter motor market for PVs.
Objects and Details of the Issue
* The total issue size is Rs. 5,550 Cr constituting (i) Offer For Sale of up to 18.04 Cr equity shares aggregating to Rs. 5,250 Cr by promoter group (Singapore VII Topco III, a Blackstone entity); and (ii) fresh issue of up to 1.03 Cr equity shares aggregating to Rs. 300 Cr. The offer shall constitute 32.7% of the postoffer paid-up equity capital of the company.
* SBPF shall utilise the proceeds from the fresh issue towards retiring debt.
Investment Rationale:
* Proxy play on value migration from ICE to EV. Share of EV segment has risen from nil to 14% within two years and is geared for exponential growth.
* Increased global market share of differential gears and starter motors to 5.0% and 3.0%, respectively in CY20 from 4.5% and 2.5% in CY19. Global share of EV differential assemblies was 8.7% in CY20 from nil earlier.
* Strong R&D & technological capabilities in hardware & software development.
* Stable financial performance reflecting counter-cyclicality; with industry leading metrics.
Valuation and Recommendation
There is no direct comparable peer to SBPF and thus we compare it with prominent Indian auto ancillaries as well as global auto ancillaries supplying certain EV parts. We observe that SBPF’s margins and return ratios are well above peers. Considering these metrics along with the counter-cyclical nature of business owing to rising share of EV revenues (and scarcity premium due to lack of available EV plays in India), we expect the company to sustain its relatively higher valuations against peers. We recommend subscribing to the issue from a long term perspective.
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