Result Analysis- Sona BLW Precision Forgings Ltd.

Result Highlight: 

• Consolidated Revenue rose 16.96% QoQ and 52.25% YoY to Rs 585.7 crore.

• EBITDA Margin contracted to 26.36% from 27.71% last quarter due to increase in RM cost.

• Net profit rose 7.32% to Rs 88.24 crore for the September quarter compared with Rs 82.22 crore in the last quarter.

• Revenue from BEV constitute 21.15% of the total revenue. BEV Revenue rose 28.13% to Rs 123.9 crore for the September quarter compared with Rs 96.7 crore in the last quarter.

• Revenue in North America, Europe, India and Asia (excluding India) grew sequentially by 3%, 7%, 22% and 42%, respectively.

• Global market share of Differential Gears/Starter Motors have increased from 6%/4.6% in last quarter to 6.4%/5% during this quarter.

• Overall net new order book stands at Rs13, 600 Crore over 10 years, with 58.5% of orders from BEVs.

Management commentary: 

• Management indicated that issues related to semiconductor shortage and higher RM & freight costs will continue in 2HFY22 but expects Sona Comstar to significantly outperform the industry on the back of strong order book. 

Conference Call Highlights 

• Guidance: Company is confident of achieving its aim of a double-digit revenue growth for the year on the back of strong order book while having margin range of 26%-29%.

• Share of BEV revenue increased to 21.15% in 2QFY22 vs. 19.31% in 1QFY20. Company added 3 new EV programs (2 from existing customers and 1 from a new customer). Total EV program tally to 20, of which 13 are yet to commence production.

• Company consumed orders worth Rs1600 Cr in 2QFY22 and added new orders worth Rs1200 Cr. Total Order book- Rs 13600 Cr.

• EBITDA grew by 11.3% QoQ (and 23.5% YoY) to 154.41%. EBITDA margin however declined by 135bps to 26.36% largely due to increase in RM costs. Pressure on gross margin was largely due to only partial pass-through of commodity costs in the Electrical segment

• Headwinds like higher RM prices, increased freight costs and semiconductor shortages will persist in 3QFY22 and 4QFY22.

• Current capacity of Traction Motors for E2W & E3Ws is 150k units p.a and the company is planning to increase this capacity to 400k units by June’22. Sona Comstar is currently supplying EV traction motor for 3 programs (two E2W and one E3W) and it is in negotiation with 15 customers for the same.

• Capex for FY22 is expected at Rs 450 Crore (earlier expectation of Rs 650 Cr) and approx Rs 180 Cr of capex will be shifted to FY23. The company is increasing capacity for differential gears and differential assemblies, for which it is building a new factory at Chakan, which is likely to be operational by Mar’22.

• Capacity utilization: Gears – 75%; Differential Assemblies – ~100%; Starter Motors – 55-60%.

Outlook:

Company is well placed in the automotive industry as it is in unique position to integrate electric powertrain (Components of electric powertrain are-Differential assembly Traction Motor, High Voltage Inverter) in a single unit. Sona Comstar is the most profitable amongst its peers in driveline business globally as company’s labour cost (8%-9% of sales) is lower as compared to its peers (20%-29% of sales). Electrification is clearly emerging as the biggest trend in the automobile industry. BEV has been the fastest growing at CAGR of approximately 46% between CY 2015 to 2025 and expected to grow at approximately 36% CAGR between FY 20-25. In India, electric 2W & Electric 3W is expected to grow at a CAGR 70%/46% for FY 2021-25 respectively. Company is well positioned to capitalize on EV Opportunities. Hence, investors can accumulate in the range of Rs. 600-625 for target price of Rs 810. Time frame should be 9-12 months.

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