Buy Sona BLW Precision Forgings Ltd For Target Rs. 580 By JM Financial Services
In 1QFY26, Sona BLW reported an EBITDA margin of 23.8% (-430bps YoY, -330bps QoQ), 30bps below JMFe, impacted by negative operating leverage and an adverse product mix— primarily due to the inclusion of the lower-margin (18%) railway business from Jun’25. EV business growth was impacted due to: a) a change in revenue recognition with an EV customer in Europe (now on delivery vs. ex-works), b) demand slowdown at a key customer, c) rare-earth magnet supply constraints, and d) US tariff uncertainty delaying OEM procurement. Despite challenging environment, Sona BLW received a) INR 15.5bn order from an existing NA customer for final drive differential assemblies (DA) (SOP: 3QFY28) b) INR 2.6bn from an existing Indian customer for 3W traction motor (SOP: 4QFY26). Further, as mentioned earlier, a JV with China’s JNT offers a significant TAM of ~INR 16.7bn (~48% of Sona BLW’s FY25 revenue, exhibit 2). In our view, EV-led growth, a strong INR 262bn order book (as of Jun’25), and continued product expansion will help navigate through near-term end-market weakness. However, due to addition of railway business and entry into highly competitive Chinese market, we have reduced our margin estimates by 160bps / 70 bps in FY26E / FY27E to 24.6% / 26.0%. Maintain BUY rating with Mar’27 TP of INR 580 (35x FY27E EPS).
* 1QFY26 – Contraction due to negative leverage and adverse mix:
Sona BLW reported consolidated revenue of INR 8.5bn (-4.7% YoY, -2% QoQ), 1.5% below JMFe. Total revenue growth was below due to overall slowdown in EVs and rare-earth magnet supply constraint. EBITDA margin stood at 23.8% (-430bps YoY, -330bps QoQ), 30bps below JMFe due to negative operating leverage and adverse product mix. Reported EBITDA came-in at INR 2.02bn (-19% YoY, -14% QoQ), 3% below JMFe. Adj. PAT stood at INR 1.3bn (-7.6% YoY, -21.3% QoQ), 4% below JMFe.
* EV business update for 1Q: EV revenue during 1Q declined -25% YoY to INR 2.1bn. Decline in EV business is attributed to demand slowdown at a key customer, rare earth magnet constraint, and a change in revenue recognition with an EV customer in Europe (now on delivery vs. ex-works). Share of BEV revenue stood at 28% during 1Q (36% in FY25). During 1QFY26, Sona BLW received INR 15.5bn order from an existing NA customer for final drive differential assemblies (DA) (SOP: 3QFY28) and INR 2.6bn from an existing Indian customer for 3W traction motor (SOP: 4QFY26). Regarding rare-earth supply constraints, the management indicated that they have identified a solution for motors below 5kW by using light rare-earth magnets. As a result, production has recovered to the April run rate. With this addition, the company now has 60 EV programs with 32 different customers. Of these, 16 programs are in ramp-up phase and production is yet to commence for 29 programs.
* JV with China’s Jinnaite Machinery Co. Ltd. (JNT): We believe the JV with JNT represents a significant growth opportunity for Sona BLW, especially considering the sizeable TAM of ~INR 16.7bn it offers. Sona BLW holds key IP in Bevel gears, vital for differential assemblies (DAs) in EVs. Under the JV, Sona BLW will supply Bevel gears from India, while JNT will handle casting to produce DAs for delivery to OEMs. For india business also, Sona BLW outsources the casting business.
* Demand outlook: Although demand uncertainties persist, several factors could help Sona BLW navigate the near-term challenges. Its entry into China’s EV market—which accounted for 66% of global EV sales in 2024—presents a significant growth opportunity. Additionally, the railway segment, where the company is a leader in braking systems, offers potential through expansion into metro rail projects and exports, supported by both existing and new offerings such as railway HVAC systems and automatic plug door systems. In terms of order book, aggregate value of the net order book increased by INR 20bn QoQ to INR 262bn (added / consumed INR 8bn / INR 28bn worth new orders); orders for EV / PHEVs stood at 75% of the net order book as at the end of 1Q amounting to INR 198bn.
* Margin outlook: In 1QFY26, the company’s EBITDA margin declined by 430bps YoY to 23.8%, primarily due to negative operating leverage and an unfavourable product mix. The inclusion of the railway equipment business, which operates at a lower EBITDA margin of ~18%, from June 2025 is expected to moderate overall margins going forward. Additionally, the company’s entry into the highly competitive Chinese market, while potentially margin dilutive, could drive substantial growth in absolute terms.
* Other highlights: 1) Exceptional item includes INR 69mn (post-tax) for acquisition related costs. 2) The company plans to enter the humanoid robot market, and expects its rapid adoption over the next decade.
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SEBI Registration Number is INM000010361
