Sona BLW: Nomura maintains ’buy’, raises target price by 15% – here’s why

Global brokerage house Nomura has increased the target price of auto component maker Sona BLW Precision Forgings following the company's impressive results for the quarter ended June 2024 and a strong order book. Maintaining a ‘buy’ recommendation, the brokerage has raised its target price by nearly 15 percent to ₹788 from the previous ₹687, indicating an almost 16 percent upside.

Nomura highlighted that Sona BLW is consistently expanding its order book and advancing new product development, which is expected to drive growth above industry averages in the medium term. "We are updating our valuation to 45x the average FY26F-27F earnings per share (EPS) (previously FY26F EPS), placing it in the middle of the company’s expected trading range of 40-50x. The stock is currently trading at approximately 43.7x FY26F EPS, which we find attractive given our 29 percent EPS compound annual growth rate (CAGR) estimate for FY24-27F, supporting its premium valuations," Nomura stated.

The brokerage projects a 21 percent year-on-year revenue growth in FY27E, noting that stronger order wins in Equipmake motor and Novelic could present upside risks to their projections. However, Nomura also acknowledged potential near-term challenges due to a slowdown among key customers. Consequently, the brokerage revised its revenue growth estimates to 21 percent and 37 percent year-on-year for FY25 and FY26F, respectively, down from the previous estimates of 25 percent and 40 percent.

"We have adjusted our FY25/26F revenue estimates downward by approximately 2 percent and 5 percent, while maintaining EBITDA margins at 28.5 percent and 29.6 percent. This leads to a +1 percent and -6 percent change in EPS," Nomura explained in the note.

Stock Price Trend

The stock has risen 22 percent in the last 1 year and 6 percent in 2024 YTD, giving positive returns in 4 of the 7 months so far. It jumped 6.5 percent in July so far after a 1.5 percent loss in June. Before that as well, the stock witnessed volatility. The stock began the year in the red, down 4 percent followed by a 11.5 percent and 2.4 percent rise on February and March. After that it fell 11.4 percent in April before rising 4.12 percent in May.

The stock hit its 52-week high of ₹764.75 on July 15, 2024 and is currently 11 percent away from that peak. Meanwhile, it has advanced over 39 percent from its 52-week low of ₹489, hit on October 25, 2024.

Q1 Earnings

Sona BLW Precision Forgings reported strong results for the first quarter of FY25. Its profit after tax (PAT) surged approximately 24 percent year-on-year to ₹140 crore while revenue came in at ₹890 crore, marking a 22 percent increase year-on-year and surpassing the consensus estimate.

The company's adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin stood at 29 percent whereas EBITDA stood at ₹260 crore, up 28 percent year-on-year.

For the company, Electric vehicle (EV) revenue contributed 33 percent of the total revenue, reflecting Sona BLW's growing focus on the EV segment. The company's order book expanded to ₹23,300 crore in Q1FY25, up from ₹22,600 crore in Q4FY24, with battery electric vehicles (BEVs) comprising 79 percent of the new orders.

Sona BLW also secured ₹1,100 crore in new orders during the quarter, including ₹680 crore from an existing EV-NA CV customer and ₹150 crore from a new Asian EV customer. Additionally, the board approved raising ₹2,400 crore through equity or convertible instruments to capitalise on new opportunities and technological partnerships.

"We have continued to progress on all our key strategic priorities. Last quarter, we won our first program for an in-cabin sensing product, ACAM, which gives us the confidence that we are moving swiftly on our long-term strategy of pivoting NOVELIC from an engineering services-led business to a product and semiconductor chip design business. We have additionally made substantial progress on our technology roadmap by winning customer orders for two new products and adding two new products to our development roadmap," said Vivek Vikram Singh, MD & Group CEO of Sona BLW.

These developments underscore Sona BLW's strong performance and strategic advancements, positioning the company for continued growth and innovation in the automotive and EV sectors.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.