Shares of Sona BLW have fallen 18% in the last six months. (File)
A couple of days ago I came across a post about how the auto-assistance companies stole the show on the auto department streets.
Indian subsidiaries have reportedly signed deals worth over 63 billion rupees (billion) in the past three months. This compares to last year’s total of Rs 69.5 billion, where the Indian auto sector witnessed a flurry of mergers, acquisitions and joint ventures.
Despite all this, the auto utility firm, which has a strong focus on electric vehicles (EVs), has underperformed the stock market.
The company in question is Sona BLW Precision Forgings or Sona Comstar.
The stock is down more than 7% in the past five days. The stock has fallen 18% over the past six months.
Let’s find out why.
Selling Blackstone’s #1 stake
The recent drop in Sona Comstar’s share price is due to the block deal.
Yesterday, March 13, 2023, Blackstone sold its 20.5% stake in Sona BLW Precision Forgings in a block deal for 49.2 billion rupees (billion).
Blackstone, through its subsidiary Singapore VII Topco III, offloaded about 11,992,5641 shares at a price of Rs 410 per share, according to data available on exchanges.
Shares of Sona BLW Precision Forgings have come under pressure in the past few days, reacting to reports of a block deal.
Marquee investors such as the Singapore government, Fidelity, FMR, ICICI Prudential Life Insurance and HDFC MF bought Blackstone shares in the block deal.
Blackstone owned about 34% of the company after the IPO, but it split the stake in several tranches, reducing the stake to 20.5%.
With yesterday’s sale, Blackstone has completely exited this auto-assistance company.
This time, too, investment funds bought the stock. We wrote about Sona Comstar last year, where we explained why mutual funds are bullish on midcap firms.
#2 Slowdown in China
Sona BLW Precision Forgings is one of the world’s leading automotive technology companies. The company has emerged as a global supplier with nine manufacturing and assembly facilities in India, USA, Mexico and China.
The company currently earns approximately 25% of its revenue from supplying battery electric vehicles (EVs) to manufacturers in its key markets of Europe, North America, China and India.
Therefore, China is one of its main economies. However, the company’s Chinese business has been affected due to the extended lockdowns in China and the outbreak of Covid-19 cases.
Factory output fell significantly across Asia in November 2022 as slowing global demand and uncertainty from China’s strict Covid-19 lockdown weighed on business sentiment.
China’s factory activity shrank as the pandemic came to a head, signaling weaker employment and economic growth in the fourth quarter.
Also, due to the new battery standards, most of the company’s two-wheeler EV customers had to re-homologize their vehicles. Therefore, the company saw very little production in October and November 2022, which negatively impacted sales of the 3rd quarter traction motors.
What next?
Sona BLW Precision Forgings expects to double the share of its global electric vehicle business to 45-50% of revenue by 2025.
Financially, the company posted the highest revenue, highest earnings before interest, taxes, depreciation, amortization (EBITDA) and highest net profit for the quarter ended December 31, 2022.
It also won the largest new order in its history, an EV drivetrain program. It’s a big step for the company, both in terms of business development and technology, because it’s also a new product for us, called the Electronic Locking Differential, or EDL.
The company recently signed its first acquisition since 2019. The company has agreed to acquire a 54% stake in Novelic for €40.5 million (approximately Rs. 3,570.5 crore). The deal is expected to close by the end of the 4th quarter of the 2022-23 financial year.
Novelic combines AI and ML, as well as ASIC expertise, to design integrated systems for autonomous driving with hardware and software capabilities that include mechanical, electrical and electronic capabilities.
This acquisition marks the beginning of a third business vertical of sensors and software. In addition to its technological excellence, Novelic is unique in its approach to profitability and sustainable growth.
The company’s focus will be on passenger and light commercial vehicles and electric buses for at least the next three years.
How Sona BLW Precision Forgings recently performed
Shares of Sona BLW Precision Forgings have fallen 6.4% in the past five days. Sona BLW Precision Forgings is down 29.4% over the past one year.
Sona BLW Precision Forgings touched a 52-week high of Rs 706.8 on 21-Mar-2022 and a 52-week low of 397.4 Rs on 26-Dec-2022.
About Sona BLW Precision Forgings
The company is engaged in the business of designing, manufacturing and supplying engineered automotive systems and components.
Some of its products include differential assemblies, gears, conventional and micro-hybrid engines, belt starter generator (BSG) systems and electric vehicle (EV) traction motors.
As the electric vehicle (EV) revolution gains momentum, the company has increased its focus on electric vehicles. It is one of the few companies that can build high capacity electrical systems.
Currently, the company is focusing on diversification across geographies and vehicle segments. Also, new products are being introduced to expand the product portfolio.
Disclaimer: This article is for informational purposes only. This is not a stock offer and should not be considered as such.
This article is from Equitymaster.com
