Sona BLW: Why Nomura thinks auto component firm may surpass industry growth

The electric vehicle (EV) revenue accounted for 33% of total revenue. The company's order book expanded to Rs 23,300 crore in Q1FY25, from Rs 22,600 crore in Q4FY24.

Nomura on Sona BLW: Sona BLW, an auto component manufacturer, is consistently expanding its order book and advancing new product development, which will drive growth above industry averages in the medium-term, according to analysts at Japan-based brokerage Nomura.

As a result, Nomura has raised its target price for the company to Rs 788, up from Rs 687, reflecting a potential upside of 14.6 per cent. The brokerage has maintained its ‘Buy’ recommendation.

“We are updating our valuation to 45x the average FY26F-27F earnings per share (EPS) (previously FY26F EPS), placing it in the middle of the company’s expected trading range of 40-50x. The stock is currently trading at approximately 43.7x FY26F EPS, which we find attractive given our 29 per cent EPS compound annual growth rate (CAGR) estimate for FY24-27F, supporting its premium valuations,” said Nomura research analysts Kapil Singh and Siddhartha Bera.

 

Analysts have also introduced FY27F estimates, projecting a 21 per cent year-on-year revenue growth. They believe that stronger order wins in Equipmake motor and Novelic could present upside risks to their projections.

Strong show in Q1 despite tough macro conditions
 

Sona BLW reported robust results for 1QFY25, with revenue of Rs 890 crore, up 22 per cent year-on-year, surpassing the consensus estimate of Rs 880 crore. The adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) margin was 29 per cent, exceeding the expected 28 per cent and consensus of 27.9 per cent, leading to an Ebitda of Rs 260 crore, up 28 per cent year-on-year (Y-o-Y). Adjusted profit after tax (PAT) jumped approximately 24 per cent year-on-year to Rs 140 crore.

The electric vehicle (EV) revenue accounted for 33 per cent of total revenue. The company's order book expanded to Rs 23,300 crore in Q1FY25, from Rs 22,600 crore in Q4FY24, with battery electric vehicles (BEVs) comprising 79 per cent of the new orders. 

Moreover, Sona secured Rs 1,100 crore in new orders, including Rs 680 crore from an existing EV-NA CV customer and Rs 150 crore from a new Asian EV customer. 

The board also approved raising Rs 2,400 crore through equity or convertible instruments for new opportunities and technological partnerships.

“We have continued to progress on all our key strategic priorities. Last quarter, we won our first program for an in-cabin sensing product, ACAM, which gives us the confidence that we are moving swiftly on our long-term strategy of pivoting NOVELIC from an engineering services-led business to a product and semiconductor chip design business. We have additionally made substantial progress on our technology roadmap by winning customer orders for two new products and adding two new products to our development roadmap," said Vivek Vikram Singh, MD & Group CEO of Sona BLW.

What did the management say?
 

In the June quarter, Sona commercialised two new products and introduced additional products, including an integrated hub motor and a hybrid motor controller for e-3W and e-LCV, the management said. 

The company anticipates initial customers for their sensors to be from the US, EU, and Asia. Furthermore, Sona BLW is progressing with the Equipment motor and will soon start engaging with customers. Future development will focus on software, with Novelic poised to leverage this area. The outlook for the EU remains weak, and the ramp-up for India’s e-2W is slower than expected.

Near-term hurdles
 

Analysts noted potential near-term challenges due to a slowdown among key customers. Consequently, the brokerage has revised its revenue growth estimates to 21 per cent and 37 per cent year-on-year for FY25 and FY26F, respectively, down from 25 per cent and 40 per cent previously.

“We have adjusted our FY25/26F revenue estimates downward by approximately 2 per cent and 5 per cent, while maintaining Ebitda margins at 28.5 per cent and 29.6 per cent. This leads to a +1 per cent and -6 per cent change in EPS,” Nomura said in a note.

Stock performance
 

On the bourses, the stock has rallied over 9 per cent in the last one month and 17 per cent in the last six months. At 9:15 AM, the stock was trading 0.72 per cent higher at Rs 703 per share. In comparison, BSE Sensex was trading flat at 80,034.46 levels.