In January 2023, PE was near to 72. Presently, the PE remains at the same level, while the stock has experienced a 49% increase during this time. ( this is after reaching a peak of 73%). Without PE expansion also a stock can grow if it is continuously giving higher result. And as DII and FII are continuously increasing their stake I hope the result will be on the higher side itself in the coming years.
Disc : Not invested now, will start investing in the range of 550 to 580
Playing with numbers to judge valuation.
Sona B last 3 years doubled revenue and 2.4 x increase in PAT.
Order book in healthy, TAM is big and good management - can expect 2x revenue and 2.25x EPS growth.
CFO in recent CNBC inverview indicated that they can able to grow revenue by 25% cagr (2x in 3 yrs).
Current PE is 69 and EPS is 8.82
If we consider EPS to grow 125% in 3 years than EPS will be 20.
If we consider stock price to grow 15% CAGR than, it will be 937 at end of 3 years. With 20 EPS and 937 price the PE will be 47.
That as per me fairly to highly valued for 20% CAGR company (Considering growth will slow down after 3 years).
My status is hold. Views will change to negative if growth will slow, positive for good acquisition.
Disc: Invested in past with average price at 498.
I think actual action will start when retail start buying this script again.
If they can maintain the run rate of 25% CAGR then order book will be consumed by FY28, in between they can secure few more orders for new products and high torque motors which are under development can be used in E-buses and trucks.
India it self is a big market interms of E-buses in the next 4-5 years.
They can win more orders in the years to come and that too perhaps at higher value. For instance they won order worth of 5100cr in the last fiscal, when the EV and overall automotive market was slow. I believe when the EV adoption is accelerated, the order wins for Sona will be more.
FY2024 Concall notes
Weak Off Highway market (Impacts differential gears and differential assembly business)
Uncertainity on FAME subsidy making Indian 2W market uncertain
Red Sea - leading to higher transportation time (increased Working capital)
Positive
Recovery in Europe and EV penetration in China
Pivoting Novelic to product engineering company
Increasing R&D Spend (good for long term growth)
This was an interesting bit - take on BEV vs Hybrid
Disc…On the sidelines for the time being—planning to invest
Regards
Pankaj Garg
(Pankajg.substack.com)
