Large order book, EV demand drive auto parts maker Sona BLW growth

Company gains market share in its top three markets of North America, India, EU

Auto parts maker Sona BLW Precision Forgings (Sona) reported strong revenue in the fourth quarter of financial year 2023-24 (Q4FY24) as demand for electric vehicles expands.

The company reported a 19 per cent year-on-year (Y-o-Y) increase in sales to beat street estimates. Sales were powered by a 34 per cent growth in the battery electric vehicle (BEV) segment and a good show in the differential gear segment.

Sona continues to gain market share in its top three markets of North America, India and the European Union. While the company posted strong sales across regions, growth was led by North America (45 per cent) where its EV orders improved. Growth in the Indian market was led by traction across segments. Growth in Europe was led by a pick-up in hybrid vehicle sales.

Rishi Vora and Praveen Poreddy, analysts with Kotak Institutional Equities, said they expect Sona’s revenue to remain strong in the medium term and will be led by order wins, EV penetration in developed markets, and new product introductions.

In the March quarter, the company added a new EV programme to supply differential assemblies to a customer in North America. It added 12 such new programmes in FY24 and cumulatively has 27 EV in production. As many as 11 the programmes are running fully.

Sona’s total order book as of March 2024 stands at ~22,600 crore, including new wins of ~1,200 crore in Q4 FY24. The EV segment comprised 79 per cent of the orders at ~17,900 crore and non-EV was valued at ~4,700 crore.
 

Operating profit margin was 28 per cent in FY24, lower than analyst estimates.

Profitability decreased sequentially due inferior product mix and higher freight costs, which had an impact of 35-40 basis points. For full FY24, the performance was better with operating profit growth of 30 per cent Y-o-Y on the back of a richer product mix, operating leverage, and raw material tailwinds.

Elara Securities has a buy rating on Sona, citing the company’s EV segment revenue growth of 33 per cent in FY24.

Global volume growth was 31 per cent Y-o-Y in CY23. The production volume growth of some key EV clients of the company would have been lower than 31 per cent in FY24, said the brokerage. This demonstrates its ability to win new orders and diversify its customer base, said the brokerage.

Kotak Research is bullish about Sona’s medium-term growth due to a robust order book, especially in the differential assembly and traction motor segments, higher EV mix, higher content per vehicle, new product launches and a ramp up of new order wins.

However, the brokerage has retained its “reduce” rating for it believes the positives are already factored into the stock price.