Target: ₹624

CMP: ₹516

Sona BLW Precision Forgings (Sona) is into manufacturing of products like differential gears (32 per cent of revenue), differential assemblies (23 per cent), starter motors for hybrids and ICE (20 per cent and 16 per cent, respectively), and traction motors for two-wheeler electric vehicles (4 per cent). Exports account for 71 per cent, with the US and Europe being the largest markets). The rapidly growing EV opportunity provides the moat for the company considering 77 per cent of the current order-book of ₹21,500 crore belongs to EV.

The company is performing well in its traditional business of differentials as well, but is also gaining traction in other products like EDL and ADAS (through recent Novelic acquisition). Though the starter motors business is waning due to ICE dependence, EV business is more than offsetting this fall. Sona is set to benefit from the electrification of light vehicles aided by its presence in both driveline and motors.

The company has several EV products on the road-map, which give strong growth visibility without assuming any market growth. Production Linked Incentive (PLI) benefit may flow through from FY25 onwards after products are approved in FY24. The addition of yet another EV product this quarter reinforces our view that the addressable market for Sona will keep expanding, and hence it should trade at premium valuations. .