Sona Comstar (Sona BLW Precision) is set to raise up to Rs 5,550 crore via IPO which opened on 14th June, Monday. Here are the details:
About Sona BLW Precision (Sona Comstar)
- Sona BLW Precision is a leading automotive technology company having its core business in designing, manufacturing, and supplying mission-critical automotive components and systems.
- Sona Comstar is a product of merger of two entities — 100 per cent Blackstone-owned Comstar Automotive Technologies and Sona BLW Precision Forgings, where Blackstone holds an equity stake.
- They rank under 10 when it comes to auto-component manufacturers. They have clients in countries like India, Europe, the US, and China.
- They have nine manufacturing and assembly facilities across India, Mexico, China, and the US. Six of the nine are located in India.
- The company has long-standing relationships of 15 years and more with 13 of its top 20 customers. Some of its key Original Equipment Manufacturer customers include Ashok Leyland, Daimler, Escorts, Escorts Kubota, Geely, CNH, Jaguar Land Rover, Revolt Intellicorp, Mahindra and Mahindra, John Deere, Mahindra Electric, Maruti Suzuki, Renault Nissan, TAFE, Volvo Cars and Volvo Eicher.
- The company’s main product lines include differential gears (27.8% of sales), differential assemblies (17.6% of sales), micro hybrid starter motors (26.7% of sales) and conventional starter motors (23.8% of sales).
- The company is a prominent player in the domestic electric-2-wheeler space supplying traction motors to domestic original equipment manufacturers (OEMs).
- As of FY21, Sona BLW Precision garners 36% of its revenue from North America, 25% in India 26% from Europe, and 7.6% from China.
- For Sona Comastar, top two clients account for 32.3% of the revenue and its top 10 customers contributed 79.6% of the revenue
- The company commanded 8.7% global market share in BEV (battery electric vehicle) differential assemblies as of FY21 and currently has eight EV programmes under serial production, with a pipeline of seven more for the future. .
- As of FY21, it derived 68% of its revenue from the passenger vehicle market, with nearly 28% from differential gears, followed by micro/hybrid starter motors at 27%.
- Sona Comstar operates in a very competitive environment. Ir competes with Motherson Sumi Systems, Sundaram-Clayton, Varroc Engineering among others
- Notably, Motherson Sumi is the biggest in this industry, with revenues of more than Rs 60,000 crore.
- Sona Comstar ranks better in terms of return ratios as compared to its other peers. It also has a higher EBITDA margin than other competitors
- The Revenue from Operations have grown at a CAGR of 50% in between FY19- 21. The strong growth in revenue has been aided by sharp demand in the EV space and revival in Existing ICE (Internal Combustion Engine) business
- Among the top ten auto-component manufacturers (by market cap), the company is the highest in terms of operating EBITDA margin, Return on Capital Employed (RoCE), PAT margin, and Return on Equity (RoE). Sona enjoys healthy EBITDA margin because of its strong in-house engineering and design capabilities.
- The EBITDA has more than doubled to Rs 441 crore in FY21 as compared to Rs 200 crore. The average RoE has ranged from 35-37% in the last three fiscal years.
- Return on Net worth (RoNW) of the company is 16.5% which is highest among its peers.
- The Net Debt has increased from Rs 1,500 crore to Rs 3,600 crore at the end of FY21 with net debt/equity increased from 0.13x in FY20 to 0.28 in FY21. This is expected to reduce after the IPO.
- Sona Comstar has not paid any dividend for FY19 but declared and paid a total dividend of 423.98% for FY20 and 189.33% for FY21 (on post bonus equity). It will continue to follow the prudent dividend policy post listing based on its performance and future prospects, according to the company’s management.
About the issue
Issue open: 14th June- 16th June 2021
Price band: Rs 285 - 291 per share
Issue Size: Rs 5550 crore, (fresh issue of Rs 300 crore and an offer for sale of Rs 5,250 crore by the selling shareholder Singapore VII Topco III Pte. Ltd, an affiliate of The Blackstone Group)
Reservation: QIB 75%, Retail - 10%, NII 15%.
Employee Reservation: 3 lakh shares
Bid lot: 51 shares, and in multiples of 51 shares
Sona Comstar has been able to deliver industry-beating margins due to its strong in-house design capabilities. Among its peers, Sona ranks better in terms of EBITDA margin, Return on Capital Employed (RoCE), PAT margin, and Return on Equity (RoE).
At the higher end of the price band, Sona Comstar is available at a PE ratio of 79 times FY21 earnings per share (post-issue). This is higher as compared to its peers. However, good businesses are always priced expensively during the IPO season, and Sona Comstar is no exception. While the company is a good play on the EV theme, there are risks of a higher capex. This could impact the return ratios.
Further, the auto industry is still reeling under the pressure of the pandemic, which could put pressure on shares from the industry over the near-term. Hence, investors with a long-term perspective could ‘subscribe’ to the issue. Given the cyclical nature of auto industry, investors with a lower risk profile should exercise caution while subscribing to the issue.