Add Sona BLW Precision Forgings Ltd For Target Rs. 590 - Yes Securities Ltd
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Valuation and View
Sona BLW (SONACOMS) 2QFY24 results were better as EBITDA/PAT exceeded our estimates by 6-8%, led by better than expected EBITDA margins at 27.9% (est 27.1%, +20bp QoQ 9 quarter high). This was led by product mix as RM remained stable QoQ. On the positive side, the key highlight of the quarter was the update on new product strategy/technology roadmap where co is moving from auto only mobility to broader mobility technology play. It has added overall ~7 new products for differential gears vertical (2 products including robotic gears and light weight differentials), Motors (2 products such as non-auto mobility motor and integrated motor controller) and Sensors (3 products for zone monitoring, short-range radars and in-cabin sensors). New order addition at Rs6b was still muted (v/s Rs13b/Rs5b/Rs42b/Rs4b/Rs28b orders added in previous 5 quarters). Co’s overall orderbook stands at Rs221b (v/s flat QoQ and Rs215b/Rs186b in FY23/FY22. Sona’s EV revenue mix during 2QFY24 were at 27% (v/s 26% in 1QFY24).
The management guided majority of new programs would go into production in 1-2 quarters. On the other hand, with RM headwinds receding, coupled with benefits of operating leverage should help margins expansion over FY23-25E. Hence, we expect revenue/EBITDA/Adj. PAT to grow 33-50% CAGR over FY23-25E. We haven’t change our FY24E/25E EPS despite recent strike impact which is expected to come through in 3QFY24E as we believe Sona should continue to outperform the underlying industry volumes. We maintain an ADD on the stock with TP at Rs590 (unchanged) given limited upside led by recent valuations expansion.
Result Highlights - Favorable product mix drive EBITDA margins
* Consol revenues grew 20.6% YoY (+7.7% QoQ) at Rs7.85b (est Rs7.7b, cons Rs7.7b) outperforming underlying light vehicle industry growth of ~14%.
* Gross margins expanded 220bp YoY/ -200bp QoQ at 54.9% (est 56.3%) partially offset by lower-than-expected other expense at Rs1.57b (+13.4% YoY/ -4.4% QoQ, est Rs1.78b). This was led by product mix impact.
* Consequently, EBITDA came in better at Rs2.2b (+36.4% YoY/ +8.6% QoQ), est Rs2.07b, cons Rs2.18b) led to margins expansion of 320bp YoY/ 20bp QoQ at 27.9% (est 27.1%, cons 28.4%). Co have consolidated Novelic’s inancials for~1 month.
* Led by steady operating performance, adj. PAT came in at Rs1.28b (+39% YoY/ +12.6% QoQ, est Rs1.18b, cons Rs1.25b).
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