The initial public offer of Sona BLW Precision Forgings is open for subscription from Monday. The Rs 5,550-crore public issue offers shares at Rs 285-291. There is a buzz around this IPO given that about 40 per cent of Sona’s revenues come from hybrids (mostly micro hybrids) and EVs. So, should you bet on this unique play on the growing market for cleaner vehicles across the globe? Let us find out.
About the company
Sona was incorporated on October 27, 1995. It is one of Indiaâ€™s leading automotive technology companies, designing, manufacturing and supplying highly engineered, mission critical automotive systems and components. It supplies products to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments. Sona Comstar is among the top 10 players globally in the differential bevel gear market. They are also among the top 10 global starter motor suppliers based on their exposure to the PV segment in calendar year 2020.
Sona Comstar has 9 manufacturing and assembly facilities across India, China, Mexico and USA, of which 6 are located in India and they have 8 warehouses, of which, 5 are located in India and 3 across USA, Germany, and Belgium.
The companyâ€™s global OEM customer portfolio includes a Global OEM of EVs (this is being speculated as Tesla though there is no official confirmation), Ampere Vehicles, Ashok Leyland, CNH, Daimler, Escorts, Escorts Kubota, Geely, Jaguar Land Rover, John Deere, Mahindra and Mahindra, Mahindra Electric, Maruti Suzuki, Renault Nissan, Revolt Intellicorp, TAFE, Volvo Cars and Volvo Eicher.
The company derives 75 per cent of their income from sale of goods with end-use in the overseas markets, including 36.1 per cent in North America, 26.5 per cent in Europe and 7.6 per cent in China and 25 per cent from sale of goods with end-use in India, for fiscal 2021.
The company is planning an issue size of Rs 5,550 crore. Out of this, the offer for sale (OFS) portion is of upto Rs 5,250 crore. The OFS is by its two promoters. Part sale by Blackstone backed Singapore VII Topco II Pte.Ltd and ii) Sona Autocomp Holding Pvt Ltd. The face value of shares is Rs 10.
The IPO lot size is 51 and so minimum IPO application will be about Rs 14,800. Post issue implied market cap of Sona will range between Rs 16,600 crore to Rs 17,000 crore.
|Company||Sona BLW Precision Forgings|
|Open date||Jun. 14|
|Close date||Jun. 16|
|Allotment date||Jun. 21|
|Listing date||Jun. 24|
|IPO band||â‚¹285 to â‚¹291 per share|
|Bid lot||51 shares|
Sona BLW Precision Forgings is a consistent performer as far as its profitability is concerned. It has been reporting the most robust margins, ROE and ROCE among the entire listed auto component space in the Indian industry.
Despite spending maximum on R&D expenses when viewed as a percentage of sales, the company with its strong engineering prowess, improving content per vehicle, hedging its risk geographically as well as product offerings and segment wise has maintained its operating margins in the 26-28 per cent range.
Going forward with EV proliferation we believe the company can report even better margins with improving utilization rates (which have temporarily gone down in FY 21 due to pandemic) will rise again due to operating leverage.
The IPO is coming at a rich valuation. The IPO price values Sona BLW Precision Forgings at 76-77 times its trailing 12-month earnings (consolidated). This is not unique because most auto and auto component players such as Motherson Sumi (74 times), Endurance Technologies (40.5 times) and Bosch (97 times) also trade at rich valuation. Bharat Forge and Varroc Engineering are loss-making at the consolidated level.
Brokers such ICICI Securities, LKP Securities have recommended ‘subscribe’ to the IPO of Sona Comstar for the long-term.
Grey market premium (GMP) for Sona Comstar IPO is said to be in single-digits, but this should not be taken as a key factor while applying for Sona BLW Precision IPO.
* Slower than anticipated revival in auto sales volume
* Steep rise in metal prices to hamper margins in interim period
* Forex transactional impact on financials