Neutral SONA BLW Precision Forging; target of Rs 685: Motilal Oswal

Motilal Oswal's research report on SONA BLW Precision Forging

SONA BLW’s (SONACOMS) 2QFY25 performance exceeded our estimates with revenue of INR9.3b (est. INR8.8b), driven by order book execution and BEV growth. Higher other income also led to adj. PAT beat. We commend the company’s ability to consistently deliver healthy performance despite weakness in its key regions. It has agreed to acquire Escorts Kubota’s railway equipment division for INR16b (estimated valuation at 8.2x trailing 12M EV/EBITDA). The management has indicated that the acquisition will be EPS-accretive from the first year. While they seem to have acquired a good business at attractive valuations, we fail to understand the synergy benefits of the same with the core. We have not yet included this acquisition in our estimates as we wait for further clarity on financials and the deal closure.

Outlook

Despite the volatile geopolitical scenario impacting different key geographies globally, SONACOMS reported PAT growth of 20% YoY in 2QFY25, driven by healthy order execution and its focus on the growing EV segment. However, valuations at ~60x/48x FY25E/FY26E consol. EPS largely factor in these positives. Reiterate Neutral with a TP of INR685 (based on ~46x Sep’26E consol. EPS).