Analysts said Sona BLW is a play on the EV (electric vehicle) theme. They said while the IPO valuation appears rich, the auto component maker is a consistent performer, with industry-leading margins, return on equity (ROE) and return on capital employed (ROCE).
They largely have ‘subscribe’ ratings on the issue for long-term gains.
The issue comprises up to Rs 300 crore worth of fresh equity and Rs 5,250 crore worth of shares on offer for sale by Singapore VII Topco III Pte, an affiliate of Blackstone. At the upper end of the price band, the issue is asking for 11 times market cap-sales and 74 times FY21 EPS.
ICICIdirect said Sona BWL offers an exciting play on electrification and possesses healthy financial strength (nearly 28 per cent margin and 20 per cent RoCE), but the proposed valuations are rich.
“Nevertheless, the company offers a good investment case on the back of strong growth prospects. Accordingly, we recommend a ‘subscribe’ rating for the long term,” it said.
The auto component maker on Saturday raised Rs 2,498 crore from anchor investors, which was 45 per cent of the total issue size. The company, which is selling its shares in the price band of Rs 285-291, allotted 8.6 crore shares to 24 FPIs, 11 domestic mutual funds, five life insurance companies, and 2 AIFs at Rs 291 apiece.
“Despite its rich valuations, considering its visibility of top-line growth, competitive edge, superior profitability compared with peers, prudent cost management, return ratios, wide clientele spread across the globe, sound R&D base and technological progress, we recommend investors to subscribe to this IPO for long-term gains,”
said in a note.
Securities said the company is catering to fastest-growing segments within auto space and that the increased adoption of the EVs would act as a tailwind for the players like Sona Comstar.
“The consistent spend on R&D and technology capabilities gives added comfort in terms of its product innovation that would add levers to its growth story. Hence, we assign a Subscribe for the long term,” it said.
Dolat Capital said Sona Comstar is among a limited number of players who are well placed to combine motor and driveline capabilities to offer a compelling value proposition to EV customers. “We see sharp revenue growth ahead led by a global recovery in the automobile segment, increasing traction in EVs and increase in realisation due to value-added products,” It said.
That said, Dolat Capital does not like the valuations which it said looks way demanding, considering the EVs component industry continue to face high challenges for technology changes, scalability, and stiff competition.
Revenue for the company grew 20 per cent annually over FY19-21, Ebitda margins were above 27 per cent while ROE over 35 per cent over the same period.
Pre-tax ROCE at 29 per cent over FY19-21 was 2.1 times global EV players’ average of 14 per cent, the company said while adding that Ebitda margin at 27 per cent was 1.4 times high than global EV peer average of 18 per cent and 2.2 times the 12 per cent margin for the domestic auto component maker.
Sona BLW intends to utilise the proceeds from the fresh issue to repay Rs 241 crore of its identified borrowings. It will spend the rest on general corporate purposes.
