Neutral Sona BLW Precision Forgings Ltd For Target Rs. 603 By Yes Securities Ltd
Slow order additions reflect macro challenges
View – Future product additions continues to be encouraging
Sona BLW (SONACOMS) 3QFY25 results were operationally in-line with beat on adj.PAT led by higher other income due to gains on QIP proceeds. EBITDA margins were in-line at 27% (-270bp YoY/ -30bp QoQ) is resilient, despite ongoing macro challenges and ESOP cost of Rs226m in 9MFY25 (vs Rs97m in 9MFY24). On the positive side, management comments around no major programs delay (apart from one each in Europe/India related to EV) while BEV revenue ramp-up continued despite moderating EV transition. However, new order addition was slowest in recent times at ~Rs7b (vs ~Rs12b/Rs11b/Rs12b/Rs20b/Rs13b/Rs5b/Rs42b/Rs4b/Rs28b/Rs6b orders added in previous 10 quarters). Co’s overall orderbook stands flat at Rs232b (vs Rs231b/Rs223b/Rs226b in 2QFY25/1QFY25/FY24). EV revenue mix during 3QFY25 were highest at 39% (vs 36%/33%/32% in 1QFY25/4QFY24).
SONACOMS revenue growth of ~11% YoY (though pace of growth has declined) vs ~1% volume growth in light vehicle segment from top 3 markets is still healthy as it continues to serve as a proxy for the global electrification trend, focus on broadening the product portfolio, expanding global scale, and cultivating a diverse customer base. This should translate into strong earnings growth and capital efficiency. Hence, we expect revenue/EBITDA/Adj. PAT to grow 22-26% CAGR over FY24-27E. We have cut FY26/27 consol EPS by ~8% each to factor in for slow domestic and weak Europe/US OHT outlook. We remain neutral with TP at Rs603 (vs R650 earlier) given limited upside as valuations factors in positives. While we are yet to integrate RED financials, we expect it would incrementally contribute 14-15% to FY27 EPS. The business can potentially grow at ~20% CAGR over FY24-27E, we believe.
Result Highlights – In-line, margins resilient despite challenges
* Consol revenues grew 11% YoY (-5.9% QoQ) at Rs8.7b (est ~Rs8.6b) vs underlying volume growth of ~1% in LV market. Gross margins contracted 350bp YoY/ flat QoQ at 55.9% (est 56.5%) largely led by unfavorable product/geography mix. This was partly offset by lower-than-expected other expense at Rs1.69b (est Rs1.81b).
* Consequently, EBITDA came in-line at Rs2.34b (+0.7% YoY/ -7.1% QoQ) led to margins contraction of 270bp YoY/ -30bp QoQ at 27% (est 27.3%). Led by higher other income at Rs469m (est Rs290m), adj.PAT came in higher at Rs1.54b (+16% YoY/ +2% QoQ, est Rs1.4b).
* Key wins and new products added in 3QFY25 – 1) ClearMotion - active suspension technology with TAM of USD14b for premium car (E class and above), 2) Zonal monitoring sensors, 3) 180 field of view radars and 4) EVTOL gearbox.
* 9MFY25 revenue/EBITDA/Adj.PAT grew 16.5%/12.3%/19.2% respectively.
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