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Subscribe to Sona BLW Precision Forgings: Prabhudas Lilladher

Prabhudas Lilladher has come out with its report on Sona BLW Precision Forgings. The research firm has recommended to ''Subscribe'' the ipo in its research report as on June 14, 2021.

June 15, 2021 / 02:14 PM IST
 
 
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Prabhudas Lilladher IPO report on Sona BLW Precision Forgings


We recommend ‘SUBSCRIBE’ for long term on Sona Comstar Ltd.’s IPO given i) huge addressable market considering strong growth potential of EV/hybrid products (~41% of revenue), ii) diversification across geographies (~75% revenue from exports) and iii) market share gains in key products. The company is one amongst limited number of players who is well placed to integrate 3 constituents of electric powertrain (differential assembly, high voltage traction and high voltage inverters) into a single matched unit offering an efficient and compact solution to EV OEMs.



Valuation and Outlook


However, Sona Comstar’s financials have remained largely stable over past few years, as EBITDA margin declined 70bp over FY19-21 (despite revenue CAGR of ~5%). Also, challenges such as i) company’s inability to de-risk its PV mix (68% in FY21 v/s 63% in FY18) and ii) issues related to EV industry such as scalability, changing technology and low penetration in India. Against these backdrops, post IPO valuations (38-40x of FY23 EPS) appear expensive as compared to other ancillary companies like MSS (~22x), ENDU (~23x) and BHFC (~28x). While listing gains are limited, we recommend long term investors to SUBSCRIBE.


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