Auto ancillary firm Sona BLW Precision Forgings has emerged a hot favourite among mutual funds (MF) in August, even though the stock has corrected by nearly 30 percent since the beginning of this year.
Funds added 36.2 million shares worth Rs 18.92 billion in one month alone through block deals, according to a report from Edelweiss Alternative Research.In August, the funds raised their holdings to 119.6 million shares, up from July’s 83.3 million.
The next biggest buy for MFs was NTPC, in which they increased their holding by Rs 9.5 billion over the same period.
They bought heavily into Sona BLW despite the stock falling from around Rs 734 to Rs 516 from January ’22 September ’22, even missing the recent June-August rally in the broader market, and trading at an expensive valuation – a trailing twelve months (TTM) PE of 94.47 against the sector’s 44.65.
The biggest buyers were SBI MF, Mirae Asset MF, and Aditya Birla Sunlife MF (ABMSL) which acquired holdings worth Rs 8.6 billion, Rs 2.9 billion, and Rs 2.09 billion, respectively, over one month. In fact, SBI increased its stake by more than 100 percent in August to total holdings worth Rs 16.69 billion.
Also read: Why EVs may disrupt SUVs first
The positive sentiment around the stock could be explained by the massive EV adoption expected in India. In Q1FY23, 29 percent of its revenue and 62 percent of its order book came from its battery electric vehicle (BEV) business.
The number of its EV projects doubled over one year, from 15 in FY21 to 30 in FY22, and then rose to 36 by end of Q1FY23.
In the June quarter earnings call, the management pointed to the reducing share of ICE to its topline. Over three years, the EV vertical’s share of revenues had risen from 2 to 29 percent, while ICE clients’ revenue share had fallen from 27 to 17 percent.
The company invests in R&D with a focus on increasing its market share in the EV space. In the call, the management spoke about their three latest products — the spool gear and epicyclic gear set for EV drivetrains, and the integrated motor controller module (IMCM) for autonomous vehicles.
The IICM (for predictive active suspension systems) is one of Sona BLW’s major innovations. The IICM helps carry power from the battery to the motor, thus enabling the vehicle to run. It also helps transmit power in the reverse – motor to battery –which helps with the braking in an EV.
Sona BLW is one of the key beneficiaries of EV adoption in the country, according to Piyush Parag, deputy VP, Fundamental Research, Sharekhan BNP Paribas.
“EV is an emerging sector in the country and many auto ancillary companies are gearing up to align their product portfolio with this,” he said, adding that the other beneficiaries are Bosch Ltd, Gabriel, Minda Corp, Mind Industries, Suprajit Engineering, Schaeffler India, Pix Transmission, and Fiem Industries. Sharekhan does not have a buy recommendation on Sona BLW though.
“Most of the companies are using internal cash accruals for expanding capacity for EV components. Some are also infusing funds through PE and strategic partnerships, which also provide access to technology,” he added.
The company is currently strengthening its two and three-wheeler play in the EV vertical, as this is the auto segment that is likely to see the largest disruption.
“Two wheelers and buses are leading the electrification, and by 2030, two wheelers, three wheelers, and buses will see the most disruption with EV adoption ranging between 50-70 percent,” said Koushik Bhattacharyya, ED and head, Industrials Investment Banking, Avendus Capital, in an interaction with Moneycontrol.
Also read: India's electric vehicle boom is built on mopeds and rickshaws, not Teslas
According to him, the Battery Management Systems (BMS) and Motor Controllers will form the core of EVs. “With electrification, they will capture the largest share of value creation in the auto-ancillary segment,” he said.
“The Sona BLW growth story is a classic example of how the right focus on electrification can propel companies to rapid growth and create value for shareholders,” he added.
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