IPO Review - Sona BLW Precision Forgings - ICICI Direct

Sona BLW Precision Forgings (SBLW) is a diversified manufacturer of highly engineered automotive components and systems with capabilities across drivetrain parts and motor electronics. The company has six manufacturing locations in India along with three plants abroad, serving automotive OEMs in the domestic as well as international markets. As of FY21, consolidated sales were at Rs. 1,566 crore with EBITDA at Rs. 441 crore (margins of ~28%) and PAT at Rs. 215 crore. Chief product lines include differential gears (27.8% of sales), differential assemblies (17.6% of sales), micro hybrid starter motors (26.7% of sales) and conventional starter motors (23.8% of sales). The company is truly a global auto ancillary player, deriving 75% of FY21 revenues from overseas, and serves clients across electrified and non-electrified platforms. SBLW is characterised by a strong technological focus, with R&D spends at 5.8% of revenues in FY21 (~15% of total on roll employee count dedicated to R&D function).

Investment Rationale

EV capability key differentiator

SBLW stands apart from much of the rest of the auto component universe by providing a strong play on the upcoming mega opportunity of electrification. As of FY21, the company obtained ~40% of revenues from 'electrified' platforms, including ~14% from pure battery EVs (BEV). This compares to ~3.3% penetration of BEV in global PV production as of CY20. SBLW's offerings to BEV/hybrid platforms spans its entire product range i.e. differential gears & assemblies, BSG and traction motors. It commands 8.7% global market share in BEV differential assemblies as of FY21 and currently has eight EV programmes under serial production, with a pipeline of seven more for the future. The company is a prominent player in the domestic electric-2-W space supplying traction motors to domestic OEMs.

Global reach compliments diversified market presence

The company is among the top 10 companies globally for differential bevel gears for PVs, CVs and tractors (5% market share). SBLW is also among the top 10 global players for starter motors in PVs (3% market share). Further, domestically, it is the largest manufacturer of differential gears for PV (55-60% market share), CV (80-90% market share) and tractors (75-85% market share). North America and Europe form ~36%, 26% of FY21 sales with exposure to top client restricted to ~17% of topline.

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Source : Equity Bulls

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