Buy Sona BLW Precision Forgings Ltd For Target Rs. 725 By JM Financial Services
Broadly in-line qtr; Breakthrough in newer geographies remain key
Sona BLW Precision Forgings (Sona Comstar) revenue was 2% above JMFe. EBITDAM at 27% was 20bps below JMFe. Margin decline (-230bps YoY) was due to unfavourable mix. Management indicated that light vehicle market (across most geographies barring EU) remained steady. However, weak OHV / CV demand in US / India is expected to a drag on performance. EV continues to drive growth and its revenue share stood at 39% during 3Q. Strong net order book (INR 232bn as on Dec’24) and consistent expansion in product portfolio is expected to support growth despite slowdown in underlying market. New order win from OEMs beyond its current markets (US, EU and India) can accelerate growth momentum. Diversified revenue, increasing share of EVs and strong order book makes Sona Comstar one of the best plays in the EV space. We expect it to post a 27% / 28% revenue / EPS CAGR over FY24-27E. Maintain BUY rating with Mar’26 TP of INR 725 (DCF based). Key risks are slower adoption of EVs and inability to win new customers/orders.
* 3QFY25 - Broadly in-line operating performance: Sona Comstar reported consolidated revenue of INR 8.7bn (+12% YoY, -6%QoQ), 2% above JMFe led by new order execution. Total revenue growth was ahead of the light vehicle sales growth in key markets (NA, India & Europe) owing to scale-up of revenue from new programs. EBITDA margin stood at 27% (-230bps YoY, -60bps QoQ), 20bps below JMFe due to unfavourable mix. Reported EBITDA came-in at INR 2.34bn (+3% YoY, -8% QoQ), broadly in-line with JMFe. PAT stood at INR 1.56bn (+17%YoY, +1%QoQ), 11% above JMFe owing to higher than expected other income.
* Investment in ClearMotion Inc: The Company’s board has approved USD 4mn investment (1.5% stake) in ClearMotion Inc, a leading software-defined chassis company. Sona Comstar is a key supplier for ClearMotion. Sona Comstar’s BLDC motor-controller-based actuator controls ClearMotion’s active suspension technology (Sona is a large part of the BOM cost). This technology has 5x lower latency compared to the other existing alternatives in the market. ClearMotion has successfully commercialised this technology (supplies to Chinese EV OEM – Nio ET9). Management expects premium cars / EVs to adopt this technology first (TAM: USD 14bn; EV agnostic) before gradual adoption in mass volume segment. Customer pipeline remains strong for this technology
* EV business update for 3Q: EV revenue during 3Q increased +48% YoY (+c.4% QoQ) to INR 3.3bn. Growth in EV business was due to ramp-up of new programs. Share of BEV revenue stood at 39% during 3Q (35% in 1HFY25). During the quarter, the company added one new EV program to supply differential assemblies for electric PVs worth INR 3bn to an exisitng customer. With this addition, the company now has 57 EV programs with 32 different customers. Of these, 14 programs are in ramp-up phase and production is yet to commence for 28 programs.
* Demand outlook: Light Vehicle production grew by 1% across key geographies like North America, EU and India. Management indicated that US EV penetration may remain slow. And in case of EU, while EV penetration will deepen, underlying market growth may be a challenge. EV differential assembly and E2W Traction Motor business continue to drive the momentum as muted India CV and US OHV demand impacted gears business. Near term (4Q) growth may get impacted due to model-change related production ramp-down at one of its key EV customer (gradual recovery from Mar’25). Focus is also on winning new business from Chinese, Korean and Japanese automakers. Aggregate value of the net order book increased by INR 1bn QoQ to INR 232bn (added / consumed INR 7bn / INR 6bn worth new orders); orders for EV/ PHEVs stood at 76% of the net order book as at the end of 3Q amounting to INR 176bn. Management indicated that barring couple of EV program where there has been delays (one each in India & EU), most of the OEM program are on schedule.
* Other highlights: 1) Exceptional item includes INR 57mn for acquisition related costs. 2) Company expects the acquisition of railway equipment division of Escorts Kubota to complete by Sep’25. 3) Company has been approved for PLI benefit on multiple products (E2Ws / E3Ws) and is evaluating its recognition policy (i.e. whether to recognise on accrual or receipt basis)
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SEBI Registration Number is INM000010361
