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Valuation and View

Sona BLW (SONACOMS) 1QFY25 results were a mixed bag as revenues and EBITDA were in-line while Adj.PAT miss was led by higher tax outgo. EBITDA margins were in-line at 28% (+30bp YoY/ flat QoQ) is resilient, led by favorable product mix and operational efficiencies despite higher freight rates and ESOP cost of Rs82m in 1QFY25 (vs Rs80m in 4QFY24). On the positive side, the key highlight of the quarter was, the resilient margins despite multiple headwinds and management comments around no delay in order book ramp-up for BEV given declining EV shift. Further, adjusted new order addition were at ~Rs11b (vs ~Rs12b/Rs20b/ Rs13b/Rs5b/Rs42b/Rs4b/Rs28b/Rs6b orders added in previous 8 quarters). Co’s overall orderbook stands at Rs233b (vs Rs226b/Rs215b/Rs186b in FY24/FY23/FY22). EV revenue mix during 1QFY25 were highest at 33% (vs 32%/30%/27%/26% in 4QFY24/3QFY24/2QFY24/1QFY24).

SONACOMS revenue growth of ~22% YoY vs ~3% volume growth in light vehicle segment from top 3 markets is 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 31-36% CAGR over FY24-26E. We have cut FY25/26 consol EPS by 2-6% to factor in for slow domestic growth (led by CV and OHV) and weak Europe/US OHT outlook. We remain neutral with TP at Rs659 given limited upside as valuations factors in positives.

Result Highlights – Operating performance in-line

* Consol revenues grew 21.8% YoY (+0.8% QoQ) at Rs8.9b (est ~Rs8.8b), outperforming underlying light vehicle industry growth of ~3% in key markets of North America, India and Europe.

* Gross margins expanded 60bp YoY/+110bp QoQ at 57.5% (est 57.2%) largely led by favorable product mix and benign RM.

* EBITDA came in-line at Rs2.49b (+23.5% YoY/+0.9% QoQ, cons ~Rs2.45b) led to margins expansion of +30bp YoY/flat QoQ at 28.2% (est 28.2%, cons 28.6%). Co reported one-offs of staff cost of Rs82m related to ESOP. Led by higher tax at 25% (est 21.5%), Adj.PAT came in below at Rs1.42b (+24.1% YoY/-4.3% QoQ, est ~Rs1.48b, cons ~Rs1.4b).

* Fund raise of upto ~Rs24b - have enabling resolution in place to raise up-to ~Rs24b as evaluating inorganic (in auto and EPIC space) and strategic growth opportunities.

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