Sona BLW shares up 10% on robust Q2, deal to buy Escort's railway equipment business

Sona BLW shares have tanked 14 percent in the past month.

Shares of Sona BLW Precision Forgings rallied 10 percent to Rs 707 in early trade on October 24 after the company reported a robust set of numbers in the second quarter, and announced a signing pact with Escorts Kubota to acquire its railway equipment division.

During the quarter, the auto components maker reported a 16 percent year-on-year increase in consolidated profit after tax (PAT), reaching Rs 143.57 crore for the quarter ended September 30, 2024.

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Revenue from operations for the quarter rose 17 percent to Rs 922.18 crore, compared to Rs 787.46 crore in Q2 FY23. Battery electric vehicles (BEV) accounted for 36 percent of the revenue, with BEV revenue growing 53 percent year-on-year during the July-September period. The company also reported a net order book of Rs 23,100 crore as of September 30, 2024.

Sona BLW Precision Forgings (Sona Comstar) has agreed to acquire the Railway Equipment Division (RED) of Escorts Kubota for a lump sum cash consideration of Rs 1,600 crore. The transaction will be conducted on a slump-sale basis, treating RED as a going concern.

According to Sona Comstar, the acquisition is expected to be earnings accretive from the first year and provides substantial growth opportunities. RED is a leading supplier of key components for railways, including brakes and suspension systems for various rolling stocks. It reported revenue of approximately Rs 950 crore in FY24.

Following the two developments, JP Morgan and CLSA have dished contrasting views on the stock. JPMorgan has maintained a neutral call on Sona BLW, raising the target price to Rs 640 per share. The company's growth is being driven by its electric vehicle (EV) revenues, with further expansion into railway components following a recent acquisition.

CLSA has upgraded Sona BLW to ‘outperform’ raising the target price to Rs 712 from Rs 690. The company delivered an in-line operating performance, and its acquisition of EKL’s railway component business is expected to drive profitable growth. CLSA also noted a potential slowdown in Sona BLW’s core business, which has increased the need for inorganic growth avenues. Revenue from the newly acquired railway equipment business is expected to contribute starting from FY26.

At about 9:20 am, shares of the company were trading at Rs 704, higher by 9.3 percent from the last close on the NSE. Sona BLW shares have tanked 14 percent in the past month.

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