American private equity giant Blackstone-promoted auto parts firm Sona Comstar has filed a draft red herring prospectus with the Securities and Exchange Board of India (Sebi) to launch an initial public offer (IPO) and raise around Rs 6,000 crore in 2021, sources with knowledge of the matter told Moneycontrol. If plans fructify, this will be the largest IPO by any auto component firm in India Inc.'s history.
On January 7, Moneycontrol was the first to report about the firm's listing plans and that the filing of papers with the market regulator may be done by February.
“The e-filing of the DRHP has been done. The size of the IPO has increased as compared to earlier plans. The total size is Rs 6,000 crore with a primary component of Rs 300 crore and the balance secondary component of Rs 5,700 crore,” one of the individuals cited above said.
“As far as the IPO proceeds are concerned, the primary portion will repay existing debt and the rest will create debt funding capacity for additional future capex investments. Blackstone will continue to be a long term investor in the firm post listing,” a second individual told Moneycontrol.
“Investment banks Kotak Mahindra Capital, JM Financial, Credit Suisse, Nomura and JP Morgan are working on the IPO. The legal advisors are Cyril Amarchand Mangaldas & Trilegal,” a third individual added.
Another person confirmed the filing by Sona Comstar. All four persons aware of the development spoke to Moneycontrol on the condition of anonymity. When contacted, Blackstone declined to comment. Moneycontrol could not immediately elicit a comment from the investment bankers and law firms.
Blackstone is the world’s largest alternative asset manager and the biggest owner of commercial real estate in India. It’s housing finance portfolio company Aadhar Housing Finance has also filed a DRHP for a $1 billion IPO in 2021. Moneycontrol was the first to report about it on January 25.
The Sona Comstar story
In August 2019, Blackstone announced the merger of Chennai-based auto component firm Comstar, which it controlled, with Sunjay Kapur's Sona BLW to create Sona Comstar. Blackstone would hold a 65 percent stake in the firm and Kapur would hold 35 percent, according to the announcement.
Kapur is the Chairman of Sona Comstar, which has nine plants spread across India, China, Mexico and the United States. It had a revenue of Rs 1,600 crore in FY19 and has set a revenue target of $1 billion by 2024. According to news reports, it is a supplier to auto majors such as Ford Motors, Daimler, Tata Motors and Ashok Leyland. It has won 50 new programs from 26 customers, which is expected to translate into revenues starting the current year.
The global EV play
Sona Comstar is a global company, diversified across platforms, products, geographies, customers and end segments. It is a leading R&D and innovation-led automotive technology player which designs and manufacturing highly engineered, mission critical automotive systems and components.
It is a major supplier to the global EV market which has benefited from the mega trend to electrification and derives 13 percent plus revenue from sales to the pure play Battery EV (BEV) segment. The firm has industry leading financial metrics with EBITDA margins of around 25 percent and ROE of 35 percent.
According to its website, the company is one of the world’s largest manufacturers of precision-forged gears for differentials with a global market share of 6 percent as well as the producer of the world’s lightest starter motor. In the domestic market, the firm is a leading player in the commercial vehicle space for bevel gear supplies.
In addition to differential gears, the company produces BSG (Belt Driven Starter Generator) solutions for hybrid cars, traction motors for EV applications, starter motors, alternators, transmission gears, axle stubs and differential assemblies for electric and combustion engine vehicles.
According to the Automobile Component Manufacturers Association (ACMA), auto component exports from India are expected to reach $80 billion by 2026.
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