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Won new orders for Electric Class-4 trucks worth INR5b

* 4QFY23 revenue/EBITDA/PAT beat our estimates, driven by a healthy execution of the order book. EBITDA margin was in line at 27.1% (-10bp QoQ). The company has won a new order worth INR5b from a North America-based new-age OEM for their electric Class-4 trucks with SOP from 4QFY24. As a result, the order book stands at INR215b (~77% EVs).

* We increase our FY24E/25E EPS by ~4.5%/6.4% to factor in a healthy order book execution, a ramp-up in new orders in FY25 and operating leverage. Maintain Neutral due to rich valuations, with a TP of INR465 (40x Mar’25E consol EPS)

Revenue/EBITDA/PAT higher; EBITDA margin in line at 27.1%

* 4QFY23 revenue/EBITDA/adj. PAT grew ~35%/49%/35% YoY to INR7.4b/ INR2b/ INR1.2b. FY23 revenue/EBITDA/adj. PAT rose ~32%/25%/17% YoY.

* 4QFY23 revenue beat our estimate, largely driven by the scale-up of new programs. BEV revenue grew 37% YoY to INR2b (28% of total revenue).

* Gross margin contracted 150bp QoQ/80bp YoY to 54.3% (est. 55.4%), mainly due to the rise in alloy steel prices.

* This was offset by lower operating costs, resulting in EBITDA margin of 27.1% (in line, +250bp YoY). EBITDA grew 49% YoY to INR2b (est. INR1.9b).

* A better operating performance, along with lower depreciation and lower tax, resulted in higher-than-expected adj. PAT of INR1.2b (+31% YoY, est. INR1.1b).

* FCFF improved to INR2.1b (v/s INR1b in FY22) due to better operating cash flow, which stood at INR5.3b (v/s INR4.4b in FY22). Capex for FY23 stood at INR3.2b (v/s INR3.4b for FY22).

* The board has approved a dividend of INR1.53 per share for FY23 (v/s INR0.77 per share for FY22).

Highlights from the management commentary

* EV mix continues to expand. BEV revenue grew 37% YoY to INR2.04b in 4QFY23, contributing ~28% to consol revenue. For FY23, BEV contributed ~26% to revenue (v/s 25%/14% in FY22/21) with revenue growth of ~33% YoY to INR6.7b. The company added one new program during the quarter, resulting in a total of 42 programs at the end of FY23.

* SONACOMS won a new order for Class 4 electric CVs worth INR5.01b, with SOP from 4QFY24. The company will supply final drive differential, intermediate gears and input rotor/shafts.

* Total order book stood at INR215b at the end of 4QFY23, with EVs accounting for ~77% of the order book. The company added new orders worth INR80b in FY23 as it won 35 programs and added seven customers.

* SONACOMS generated FCF of INR1.99b in FY23, and the entire capex of INR3.5b incurred through internal accrual. Moreover, the management has guided for a capex of INR10-11b over the next three years.

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