IPO Note - Sona BLW Precision Forgings Ltd By Ventura Securities
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Sona BLW Precision Forgings Ltd (SBPF) is one of India’s leading automotive technology company involved in 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 nonelectrified powertrain segment.
SBPF is among the top ten players globally in the differential bevel gear market on the basis of overall volumes of differential bevel gears supplied to PVs, CVs and tractors. It is also amongst the top ten global starter motor suppliers based on exposure to the PV segment and market share in CY 2020, according to the Ricardo Report.
As per the Ricardo report, in CY20 the global market share across products stands at ~5.0% for differential bevel gears, 3.0% for starter motors and 8.7% for BEV differential assemblies. SBPF has nine manufacturing and assembly facilities across India, China, Mexico and USA. Six of these facilities are located in India, from where it supplies products to six out of the top ten global PV OEMs, three out of the top ten global CV OEMs and seven out of the top eight global tractor OEMs by volume
We expect overall revenues / EBITDA / PAT to grow at a CAGR of 42.5% / 45.6% / 56.4% to Rs.4,530.9 cr / Rs.1,362.4 cr / Rs.823.4 cr, respectively, by FY24. EBITDA and net margins are expected to improve by 190 bps and 440 bps to 30.1% and 18.2%, respectively, over the same period. Consequently, return ratios RoE and RoIC are also expected to improve by 1,300 bps and 1,600 bps to 29.5% and 36.0%, respectively by FY24.
Key investment highlights
High industry growth rate for Battery Electric Vehicle (BEV) augurs well for SBPF
According to the Ricardo report, the BEV segment is expected to grow at a CAGR of ~ 36% to 11.2 million units by CY25 from the current 2.3 million units. This is a critical growth factor for SBPF as the company supplies
* EV differential assemblies
* Differential gears,
* BSG systems
* EV traction motors into these markets. It is to be noted that SBPF derived 13.8% of its income from sale of goods to BEV market in FY21.
Demand for electric 2W to drive overall EV growth
As per CRISIL, electric 2Ws are expected to grow at a CAGR of 72-74% over the period FY21-26 while the electric 3W segment is expected to grow at a CAGR of ~46% to reach 4 lakh units by CY25. It is to be noted that SBPF supplies e-axles, BLDC motors and motor control units for use in the electric 2Ws and 3Ws segments.
Strong R&D capabilities in both hardware and software development have pivoted SBPF to the top of the league among peers
SBPF has developed strong in-house capabilities to deliver evolving green technologies for future mobility. It incurred an aggregate spend of Rs 156.4 crores on R&D during FY2019-21.
It is to be noted that the share of R&D expense as a % of revenue has been slowly increasing as highlighted in the graph below.
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