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Sailing through global uncertainty.

In Q4, consolidated revenue of Sona BLW Precision Forgings (SONACOMS IN) declined 2% YoY to INR 8.6bn, owing to a model transition for a key US customer (adjusted for earlier quarters PLI benefit, revenue at INR 8.5bn was in line with our estimates, down 4% YoY). However, revenue from electric vehicles was up 8% YoY (forming 35% of overall revenue) to INR 2.9bn. EBITDA was down by 5.3%, with margin at 27.1% (adjusted for PLI benefit of previous quarters, it came in at 25.4%). Management acknowledged the tough macro environment, especially due to the US tariffs, Management expects ~3% of revenues at risk of losing business, owing to customers shifting suppliers, the balance US revenue would be exposed to demand slowdown, which is difficult to ascertain currently. Orderbook continues to be healthy at INR 242bn, which is 6.8x FY25 revenue; this gives us visibility on mediumterm growth. While medium-term challenges persist, SONACOMS has several levers of product, segment, and customer expansion. We reiterate Buy with a lower TP of 587 based on 40x June FY27E PE, as we roll forward.

Margin under pressure, led by adverse mix: EBITDA margin included INR 190mn in PLI benefit for the previous quarters (Q1-Q3); adjusting for that, margin came in at 25.4%, down 156bp QoQ. This was driven by the adverse mix caused by the model transition by a major customer in North America. However, production is likely to normalize, starting in Q1FY26, paving the way for recovery and improved performance in subsequent quarters.

Robust orderbook; new order wins despite tariffs: The company closed FY25 with an order book of 242bn, out of which ~77% at INR 187bn is from EV and long term in nature. In Q4FY25, it won new orders worth INR 17bn. Despite the tariffs imposed by the US, it won an order worth INR 15.2bn for supplying rotor-embedded differential sub-assembly and epicyclic geartrain for a North American EV customer, which will start production from Q4FY26. It also commercialized a new product in Q4FY25 – steering bevel box and won orders worth INR 1.1 bn by a global CV OEM, which will start production from Q3FY26. On the positive side, it sees global supply chains realigning (and derisking from China), which could benefit suppliers like SONACOMS in the long term. The company is foraying into a new area – humanoid robots, with products like motors, reducers and gears, potentially targeting 53-60% of BOM cost. However, China currently dominates the supply chain.

Reiterate Buy with a lower TP of INR 587: We are impressed by SONACOMS’ BEV segment (~40% YoY revenue growth in FY25) despite key global EV OEM seeing a slowdown. However, we note medium-term growth pressures remain for a few key BEV clients. The company continues to show strong new product development capability (for eg, suspension motor for Nio ET9). It has several levers of product, segment and customer expansion we look for to play an auto ancillary company. We lower our FY26E-27E EPS estimates by 12-14% and hence, pare TP to INR 587 from INR 644 on 40x (unchanged) June FY27E EPS, as we roll forward. We introduce FY28 estimates. We have yet to incorporate the Railways business into our financials (likely form next quarter). We reiterate Buy.

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