You have to find it amusing that this is priced cheaper than Uno Minda which is not as technologically adept as Sona. Management has been walking the talk and remember that we still are not in the golden age of EVs. I predict that this will start as soon as EV production gets to the price of fueled vehicles. Market will realize this sooner or later.
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Comparing with a over-valued stock doesnât make Sona BLWâs valuation reasonable (I donât track Uno Minda, I take your word on itâs over valuation).
If we buy Sona BLW at current multiples, how big their business and bottomline growth should be for an investor at current valuation to get good returns?
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The value of any business is sum of all the future discounted cash flows.
Sonacoms is sitting on 7X order book to its annual revenue, which they will deplete over 10 years. The company has outstanding track record over past 5 years of delivering 20% RoE.
They average growth rate has remained > 20% over 5 years.
What all this means is that you can expect consistency and predictability going ahead too. The future cash flows for next 5-6 years should grow at 18-20% in as-is scenario. Considering that, the market price is lower than value. Also, company is going to benefit from PLIs from next fiscal year.
What is troubling market is US tariff fear and Chinaâs EV push. I am more fearful of later because Chinese have their own ecosystem. If they conquer EU EV market, it will be bad for entire EV value chain in rest of the world - OEMs, Part manufacturers, ER&D playersâŚ
Chinese EV manufacturers only employ Chinese auto parts manufacturers, own software providers. So you canât supply to them, unless you build trust with them in China market, not in EU.
So when these are the challenges, recovery becomes time-taking and would require clarity in the global ecosystem. Also, when everything is down and becoming cheaper, the competition is not with its own price and value gap, but price and value gap of other interesting businesses also. Therefore, it will be very difficult to say when the gap between price and value will be bridged.
Stance - Invested
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