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Target: ₹750
CMP: ₹569.65
Sona BLW Precision Forgings (Sona Comstar) remains of the key beneficiaries of rising global electrification phenomena. Receding supply constraints (from 2HFY23) coupled with strong net order book of ₹18,600 crore (as on Mar’22) will start reflecting true growth potential for the company.
Though margins in the near-term will likely be affected by RM cost pressures, we expect margins to improve in H2-FY23 post gradual correction in commodity prices.
Further, PLI incentives can provide a fillip to its margins given Sona’s key EV products - DA and traction motors are eligible for PLI. We expect revenue to post a 39 per cent CAGR over FY22-24 (30 per cent + share from EVs) driven by high revenue visibility backed by strong net order book.
EBITDA margin is expected to remain robust around 26.8 per cent/30.4 per cent led by higher operating leverage and PLI incentives. The company is currently trading at 45x FY24 EPS and given the strong growth potential, we believe that it will continue to trade at a premium valuation.
We reiterate our BUY rating and TP of ₹750/share (based on DCF)
Key risks: Dependence on the cyclical and fast-changing global automotive sector, delayed adoption of EVs and inability to win order for new products.
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