Sona BLW Precision Forgings Limited is one of the India’s leading automotive technology companies. The company is primarily engaged in designing, manufacturing, and supplying high-quality mission-critical automotive components such as differential assemblies, gears, conventional & micro-hybrid starter motors.
According to the Ricardo Report, in 2020, Sona BLW were among the top 10 players globally in the differential bevel gear market and they have also been gaining global market share across products to reach a share of approximately 5.0% for differential bevel gears, 3.0% for starter motors and 8.7% for BEV differential assemblies.
Sona BLW have nine manufacturing and assembly facilities across India, China, Mexico and USA, of which six are located in India, from where they supply products to six out of the top 10 global PV OEMs, three out of the top 10 global CV OEMs and seven out of the top eight global tractor OEMs by volume.
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Promoters & Shareholding:
Sunjay Kapur, Sona Autocomp Holdings Private Limited and Singapore VII Topco III Pte. Ltd are the company promoters. The promoters had 100% of the pre issue holding and will have 67.3% of post issue holdings.
Public Issue Details:
Offer for sale: Fresh issue ofapprox. 10,309,293 equity shares at Rs. 10, aggregating up to Rs. 300 Cr and OFS of approx. 180,412,347 equity shares,aggregating up to Rs. 5,250 Cr.
Total IPO Size:Rs. 5,550 Cr.
Price band:Rs. 285 – 291.
Objective: To make repayment or prepayment of company’s borrowings fully or partially and for general corporate purposes.
Bid qty: minimum of 51 shares (1 lot) for Rs. 14,841and maximum of 14 lots.
Offer period: 14th June 2021 –16th June 2021.
Date of listing: 24th June 2021.
Pros:
- One of India’s leading automotive technology companies and leading manufacturers and suppliers to the global EV market.
- The company has strong Research & Development (R&D) capabilities.
- Wide range of product portfolio.
- Diversified across automotive geographies, vehicle segments, and customers.
Cons:
- Their business largely depends upon the top ten customers.
- Their business is subject to costs, risks and uncertainties, including those associated with laws and regulations in domestic and foreign jurisdictions.
- Covid pandemic or any other similar public health threat could adversely affect its business.
Subscribe or avoid?
BEV ( Battery Electric Vehicle) has been the fastest growing segment at a CAGR of approximately 46% between calendar years 2015 to 2020 and is expected to grow at a CAGR of approximately 36% between calendar years 2020 to 2025 according to the Ricardo Report. BEV global vehicle production volume is expected to grow by five times in the next five years (from 2.3 million units in 2020 to 11.2 million units in 2025). It will be positive for Sona BLW as they supply EV differential assemblies, differential gears, BSG systems and EV traction motors into this market.
On the financial side, the company has had consistent growth in their revenue for the past 3 years and they have reported net profits ofRs. 215.16 Cr, Rs. 360.34 Cr and Rs. 173.2 Cr in the FY21, FY20 and FY19 respectively.
On last 3 years average EPS of Rs 5.65, the P/E ratio is 51x. On the upper price band of Rs 291 and EPS of Rs 7.06 for FY20, the P/E ratio is 41x. If we annualize its 9 months ended Dec-21 EPS, the P/E ratio is 80x. Hence the company is asking P/E range of 41x to 80x here are listed peers like Motherson Sumi, Sundaram Clayton, Varroc Engg, Bostch etc., which are trading at P/E between 46 to 148. However, these are not apple to apple comparable considering the business models. Hence, it appears its fully priced. However considering the growth in this business and other positive factors from long term perspective, we recommend “SUBSCRIBE” to this issue.
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Disclaimer:
This article should not be construed as an investment advise, please consult your Investment Adviser before making any investment decision.
