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Sona BLW Precision Forgings (Sona Comstar) consol. revenue was broadly in-line. EBTIDA margin at 28.2% was 50bps above our estimate. Margin improvement (+40bps QoQ) was led by favourable mix and higher operating leverage. Management indicated that US / EU / India light vehicle market remains healthy. EV revenue grew 12.5% QoQ led by ramp-up of new programs. Share of EV revenue stood healthy at 27% during 1H and the company continues to win new EV orders (c.78% of net order book). Strong net order book (INR 221bn as on Sept’23) and expansion in product portfolio (added 7 new products during 2Q) is expected to aid growth. Higher operating leverage is expected to support margins (LT guidance remains in the range of 25-27%). Diversified revenue, increasing share of EVs and strong order book makes Sona Comstar one of the best plays in the EV space. We expect Sona Comstar to post a c.28% / 36% revenue / EPS CAGR over FY23-26E. We maintain our BUY rating with Sept’24 TP of INR 700 (based on DCF). Key risks are delayed adoption of EVs and inability to win order for new products.

* 2QFY24 - margin beats estimates: Sona Comstar reported consolidated revenue of INR 7.9bn (+20% YoY, +8%QoQ), broadly in-line with JMFe led by new order execution. Total revenue growth was ahead of the light vehicle sales growth in key markets (NA, India and Europe) owing to scale-up of revenue from new programs. EBITDA margin stood at 28.2% (+300bps YoY, +40bps QoQ), 50bps higher than JMFe. QoQ improvement in margin was led by favourable product mix and higher operating leverage. EBITDA came-in at INR 2.2bn (+35% YoY, +10% QoQ), 3% ahead of JMFe. Adjusted PAT stood at INR 1.3bn (+40%YoY, +13%QoQ), 6% ahead of JMFe.

* EV business: EV revenue during 2Q increased +58% YoY (+12.5% QoQ) to INR 2.07bn. Sequential improvement in EV business was due to ramp-up of new program related to E2W traction motor. Share of EV revenue stood at 27% during 1H (26% in 1QFY24). The company added two new EV programs - 1) To supply rotor embedded differential subassemblies for high-performance electric PV worth INR 1.7bn (SOP in 2QFY25) to a newage NA EV OEM, 2) To supply mid-drive traction motors for E3Ws worth INR 3.7bn (SOP 3QFY25) to an Indian OEM of PVs, CVs, OHVs and EVs; totalling to 48 BEV programs with 28 different customers. Of these, 15 programs are in ramp-up phase and production is yet to commence for 23 programs.

*Demand outlook: Management highlighted UAW strike had some impact on revenue growth for 2Q and expects strike to end in the next few days. Overall, demand remains healthy (LV production grew by 14%) across key geographies like North America, EU and India. Aggregate value of the net order book increased by 1bn QoQ to INR 221bn (added INR 6bn worth new orders); orders for EV/ PHEVs stood at 78% of the net order book as at the end of 2QFY24. The company also indicated that EV Traction Motor programs are in ramp-up phase and expects Sensors’ business (consolidated from Sept’23) to be the third pillar of growth going ahead.

* Other highlights: 1) During 2Q, the company added 7 new products, 2 each in Driveline and Motor segment and 3 products in Sensors’ business. 2) The company is currently validating and testing design and performance of Equipmake products to check its suitability in Indian conditions and the product launch in India is expected by 4QCY25/1QCY26. 3) No customer is >20% of overall revenue. 4) The management indicated PLI benefit is linked with product approval and the company’s product approval is in pipeline.

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CIN Number : L67120MH1986PLC038784