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.
Hi Community,
Would like to share a though and seek your feedback!
Sona BLW is a R&D driven organization and playing in the EV adoption theme. EV adoption is inevitable, now or later cars will transition to EV, management also said that by the end of 2035 most of the automobiles are going to be EV.
I have the following thesis points:
Company is trading at rich valuation, it does justified as there are not many companies who has such a unique business model.
What do you think of the company and do you think Sona BLW is long term portfolio stock, that you can keep in your portfolio for the next 10-15years? Could it be a silent wealth creator?
Except this statement, I agree to all other points.
Why EV adoption is not inevitable?
Worldwide Governments are pushing this through policies a lot, city in which I am living in, slowly replacing all the diesel public transportation buses to electric.
I am not saying all the vehicles on road will be EV in the next 10years but majority of them will be. There will still be the use case of diesel vehicles especially in transportation.
An article from Goldman Sachs regarding that topic.
I think they are trying to say “weak EV momentum” ?
Though they havent mentioned % increase from 2030-40 but EV is ranked 1st by 2040.
If we look at the loong term scenario, To me it looks like its inevitable.
Did I miss something at the article ?
D-Not invested.
I think they can grow consistently at 20-25% (excluding PLI) in long-term basis as long as they are introducing new products in their business.
They can do strategic acquisitions to expand their portfolio base like novollic acquisition.
I too like the management for their transparency, experience and vision.
Recently announced PLI qualifications will boost the bottom line quickly, if I remember correctly all their EV related products will come under PLI and benefit will be 10% of revenue. FY24 BEV revenue is around 800Cr.
A general question (due to lack of automotive tech knowledge).
Are the products of Sona BLW catering to all the below 3 segments?
If yes, that covers the risk of delays in EV adoption
Yes, all the 3 segments. They are primarily a differential assembly, several types of gears and starter motor producer. They even have global market share in many of the products. Indeed, they have application in all the 3 segments you have mentioned above.
They are using their existing expertise in starter motor manufacturing to transition into EV traction motors and using the expertise in differential assembly and gears to make same products for EVs.
It’s noteworthy to mention that the differential gears and other gears used in EV shall be exclusively designed, as they need to be extremely strong (as compared to ICE) and should have very good weight to strength ratio.
Sona BLW is market leader in this technology of making extremely strong forged components that have very good strength to weight ratio. Also, these components are not generally fungible, that means have to be customized to designed exclusively for an OEM. That leads to the industry best margins for this company. IMHO, they are acting as a contract R&D partner and later contract manufacturer.
Do they have considerable exposure to suv segment
yes, in all the segments.
The EV transition is contingent upon 2 factors:
(1) Upfront cost ----which is further dependent on battery tech / decrease in battery cost as batteries are 40% of cost
(2) Charging Infra
I started positioning myself in the stock only after seeing the green shoots in the PV action after FY24 results.
Full stack:
(Sona BLW Precision Forgings Ltd - by Pankaj Garg)
This company falls in fundamental VCP framework. Some stocks remain expensive for a long period of time…this imo is one of them.
Absolutely agree. I made the mistake of buying Sona in 2022 when the right time is now. Henceforth Sona should be a high growth compounder.
