Sona Blw Precision Forgings Share Surges Over 6% Today – Detailed Analysis on Growth Drivers and Future Outlook

Sujeet Kushwaha

Sona BLW Precision Forgings (Sona Comstar), a leading automotive technology company, saw its stock price surge over 6% to Rs 614.50 on Wednesday.

The recent uptrend in the stock can be attributed to multiple factors like strong Q2 results, positive analyst outlook and increased institutional investment.

Key Takeaways

  • Sona BLW share price increased 6.09% to Rs 614.50, trading near day’s high of Rs 625.
  • The stock has given returns of 38% year-to-date and 41% over last 1 year.
  • TTM P/E ratio stands at 73.74 compared to sector average of 33.45.
  • 14 analysts cover the stock currently with 9 strong buy/buy ratings, 4 hold ratings and 1 sell rating.
  • Mutual funds increased their holding to 3.33% in Sep 2023 quarter compared to 2.74% in Jun 2023 quarter.
  • FIIs also hiked their stake to 33.35% in Sep 2023 quarter versus 32.11% in previous quarter.

Growth Drivers for Sona BLW

Sona BLW Precision Forgings is engaged in design, manufacturing and supplying highly engineered, mission critical automotive systems and components such as differential assemblies, differential gears, conventional and micro-hybrid starter motors, BSG systems, EV traction motors and motor control units.

Some of the key factors driving growth and positive outlook for the company are:

1. Increased EV Focus

Sona BLW has strong capabilities in EV components like traction motors, motor control units, battery management systems etc. It is well positioned to benefit from the expected boom in EV adoption globally. The company has entered into multiple new contracts for EV components supply.

2. Strong Customer Profile

The company supplies components to leading automotive OEMs across US, Europe and India including the likes of Mahindra & Mahindra, Tata Motors, Renault, Volvo, GM, Ford, Ferrari etc. Its business visibility is strong with 85%+ revenues coming from marquee customers.

3. Financial Performance

Sona BLW has exhibited strong financial performance in recent quarters. In Q2 FY23, it reported Net Profit of Rs 123.85 crore, up 45% YoY. Revenues grew 57% YoY to Rs 589 crore driven by growth across segments. EBITDA margins improved to 22%.

4. Technological Prowess

The company has strong R&D capabilities with globally benchmarked tech centers. It has filed over 200 patents so far, giving it an edge over competitors. Its R&D investments aid development of innovative & value-additive products.

5. M&A and Inorganic Growth

Sona BLW has made strategic acquisitions over the years to augment technological capabilities and enter new markets. The acquisition of Comstar Automotive in FY22 gave it entry in US markets. Further strategic buyouts can act as growth catalyst.

Analysts’ Recommendations

Sona BLW stock has received overwhelmingly positive recommendations from analysts:

  • Out of 14 analysts covering the stock, 9 have strong buy/buy ratings while 4 have hold ratings and only 1 has sell rating.
  • This points to strong confidence among analysts regarding future growth prospects of the company.
  • Analysts have an average target price of Rs 750 on the stock, implying a potential 22% upside over current levels.

Some analysts’ views:

  • Jefferies has maintained buy rating with target price of Rs 810 citing Sona BLW’s strong position in fast growing BEV/PHEV market and calibrated capex strategy focused on profitable growth.
  • ICICI Securities sees 36% EPS CAGR over FY22-25 driven by cyclical upturn in PV industry, market share gains, new order wins and inorganic initiatives. It has buy rating with TP of Rs 810.
  • HDFC Securities notes that new order wins would ensure volume visibility. It retains buy rating with Rs 755 target price.

Shareholding Pattern

The mutual funds increased their stake in Sona BLW to 3.33% in Sep 2023 quarter from 2.74% in previous quarter.

Meanwhile, FPIs also hiked their holding to 33.35% versus 32.11% earlier. The increase in institutional investment indicates their confidence in future prospects of the company.

The promoter holding is at 29.76% while public shareholding stands at 70.24%.

Valuation and Future Outlook

Sona BLW stock trades at TTM P/E multiple of 73.74 which is considerably higher compared to the sector average P/E of 33.45.

The premium valuation depicts the strong growth potential of the company. With estimates of 38-40% Revenue/PAT CAGR over FY22-25, Sona BLW warrants the higher valuation multiple.

Some key growth drivers going forward are:

  • Launch of over 50 new programs across traditional and EV segments over next 2-3 years
  • Ramp up of new manufacturing facilities in India/US to support growth
  • Strategic acquisitions especially in EV components space
  • Increased content per vehicle leading to market share gains
  • Growth in global EV markets providing volume uptick

Given the strong industry position of Sona BLW, its technological edge, new contract wins, financial performance and positive analyst outlook, the stock is poised for good upside in the coming years. Long term investors can look to buy the stock on dips for healthy returns.

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Leveraging his government experience, Sujeet brings valuable insight on the stock market to readers. His passion for analysis drives coverage of equities and the latest financial news. When he's not busy dissecting stocks, Sujeet enjoys learning about new businesses and industries.
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