Sona Comstar BLW - Direct EV Play

Sona BLW Precis.

The picture looks like of one of those of arduous treks in the Himalayas. The investors who bought it with the hopes of it doing wonderous things due to its EV affinity had been let down with a thud.

So, is it giving an opportunity?

Have invested a small amount since the post. Edited to update.

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Good set of nos, Q3FY23.

Key Financial Highlights – Q3 FY23

  • Revenue of Rs. 685 crores with 39% YoY growth
  • 26% revenue share from Battery Electric Vehicles (BEV), BEV revenue growth of 29% YoY
  • EBITDA of Rs. 186 crores with a margin of 27.2% and 43% YoY growth
  • PAT of Rs. 107 crores with a net profit margin of 15.6% and 45% YoY growth
  • The net order book increased to Rs. 23,800 crores from Rs. 20,500 crores as of September 30th, 2022

Key Financial Highlights – 9M FY23

  • Revenue of Rs. 1,932 crores with 22% YoY growth
  • 25% revenue share from Battery Electric Vehicles (BEV), BEV revenue growth of 31% YoY
  • EBITDA of Rs. 494 crores with an EBITDA margin of 25.6% and 17% YoY growth
  • PAT of Rs. 276 crores with a net profit margin of 14.3% and 18% YoY growth
  • The net order book increased to Rs. 23,800 crores from Rs. 18,600 crores as of March 31st, 2022

Disclaimer: Holding, and accumulating. Not an investment reco. Consult your investment advisor before any investment decision.

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In todays press releases they have mentioned that they have won 3000+ cr order. This is very huge in my opinion and shows the ability of company to scale. If you look at depreciation expense it has almost doubled from 100 odd cr 3 years ago to 47 cr in latest quarter which is almost like doubling the assets. I think real benefits of these will start showing in future quarter may be starting next year.

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Can someone please send Q3FY23 concall highlights.

Still no justification on current valuations. Risky counter

Disc: - Not invested, watching hopelessly for expecting in reasonable valuations.

Auto ancillary valuations seem to be too high. The PE of Samvardhan Motherson Sumi is 61. Uno Minda 51. Bosch however seems to be the lowest among them at 39.

I am not sure whether such high valuations for any sector are justified.

Issue with such high valuation is possibility of losing money.
Growth can be there in these valuations too. But risk/reward is what investor should look at before investing and be calculative safe.

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The reason for the high valuations could be the visibility of the revenue based on the huge orderbook of 23,800 Cr to be executed over the next decade, and this orderbook just keeps increasing every quarter. The current orderbook is 73% for EV segment. Also their return ratios (RoE and RoCE) are in 20s, higher than normal auto ancillaries.

Superior profitability, revenue visibility, increasing proportion of EV business could be the reasons market valuing the company at such high levels, in my opinion.

Disc: Taken tracking position

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I really wonder how did they arrive at order book (someone need to ask in next concall). Haven’t seen any other auto component company talking about “order backlog”. This concept of order backlog only work for discrete project companies like L&T or Thermax etc. Most of the auto companies given Open PO ie. only per piece rate is given. Actual quantity to be supplied is communicated via schedules - one month fixed, rest 2 months tentative. These schedule change all the time…Hence any auto component supplier has visibility of max 3 months.

It may be that post ERP implementation, PO can not be released without entering annual quantity so companies tend to over estimate their requirement and put some quantity numbers (but they are not bound by that as it is always considered EAU - Estimated Annual Usage). So Sona may be adding up all these optimistic order values to arrive at order backlog. If so, it would be clearly a pipe dream.

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Axis Bank acquires more than 5% of Sona equity.

I have a small investment in SonaBLW.

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India Ratings Revises Sona BLW Precision Forgings’ Outlook to Positive; Affirms ‘IND AA’

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In the last call they told about PLI incentives will clock in FY24, 11-15% of BEV revenues(25% of overall sales). We can expect 50-70 cr adding to bottom line directly every year on incremental basis

Yes, this is really difficult to interpret. 10-11x Order Book to TTM Sales is way too high. Even complicated Engineering Cos with a long execution period, do not have such multiples. Based on this order book, the sales should be doubling or tripling every year, which is not the case. So getting clarity on this will be important.

Disc : Bought a small tracking position.

As per my understanding they have some new products whose serial production is still pending and supposed to start in FY24, 25 & 26.
As these are new products and OEM’s might be requiring these products in that particular years for their vehicle production in those particular years.

Ex: they have announced a product integrated motor controller module (IMCM) in Q3FY22, serial production of this will start in H2FY24 and has a revenue potential of @ 400cr/annum

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The order book they report is Net order book for 10 years.You can watch this interview where there was a question asked about the same.

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Yes you are right order book is spread over a 10 years period. But there are some new orders like in this quarter they have received a 500cr order which has to be executed from this financial year itself.

This kind of new short lead time orders can contribute to revenues in next few years to ensure growth of atleast 25%.

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The company is adding High Voltage Traction Motors and Inverters to
product offerings in partnership with Equipmake.

Disc- Invested.

3420a867-7eb5-4ddd-9f58-7271d6144265.pdf (1.6 MB)

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Any theory why promoters reducing stake ?

Q1 results came post market…looks ok at 1st glance
https://www.bseindia.com/xml-data/corpfiling/AttachLive/4677ad5f-32be-407b-b1f5-bd468ad95440.pdf

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The deal wins and outlook is quite promising. The order book with 10 yrs factoring is reached to 22,000 Cr. It appears that there are massive tail winds going for Sona-Comster.

Press Release - https://www.bseindia.com/xml-data/corpfiling/AttachLive/432b48b8-b546-4615-acfa-29fc45abfe94.pdf

Investor Presentation - https://www.bseindia.com/xml-data/corpfiling/AttachLive/060eb402-acad-4d53-9067-29570dd64388.pdf

Capacity Expansion at Chennai - https://www.bseindia.com/xml-data/corpfiling/AttachLive/a298e721-b908-4403-9cf2-35152197451f.pdf

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