Sona BLW Precision Forgings LTD: A Local Exotic Option

INSTITUTIONAL EQUITY RESEARCH
Sona BLW Precision Forgings Ltd (SONACOMS IN)

A local exotic option
10 January 2022
INDIA | AUTOMOBILES | Initiating Coverage
Initiating coverage on Sona BLW Precision Forgings with a Buy rating
Sona BLW Precision Forgings is a leading manufacturer of driveline and electrical components
BUY (NA)
for vehicles globally. We expect it to benefit greatly from vehicle electrification globally with CMP RS 734
(1) its products being aligned to electric powertrains, (2) new product introductions providing TARGET RS 915 (+25%)
further growth, (3) long-standing customer relationships, and (4) strong R&D focus. We SEBI CATEGORY: MID CAP
expect a revenue CAGR of 33% over FY21-25. Pushed out growth, high profitability and return
ratios would lead to higher implied valuations, at least in the medium term. We initiate COMPANY DATA
O/S SHARES (MN) : 584
coverage on Sona with a Buy rating and target price of Rs 915 using DCF and P/E. MARKET CAP (RSBN) : 429
MARKET CAP (USDBN) : 5.8
Electrification is a multi-decadal trend… 52 - WK HI/LO (RS) : 840 / 295
We expect electrification to continue gathering pace over the next decade or so, based on LIQUIDITY 3M (USDMN) : 27
advancement in technology (battery, motor, software) and government push (emissions, fuel PAR VALUE (RS) : 0
efficiency, and demand incentives). We expect EVs to grow at c.30% through this decade.
SHARE HOLDING PATTERN, %
…which is laying growth opportunities in Sona’s path Sep 21 Jun 21 Mar 21
PROMOTERS : 67.3 67.3
Motors/controllers combined with driveline products (gears, transmission) along with battery DII : 16.4 15.2
are going to be the key enablers and beneficiaries of electrification. Sona lies in a sweet spot, FII : 10.4 13.9
with its expertise in motors (starter motors/generators) and differential gears (DG). It is able OTHERS : 5.9 3.6
to offer a compelling proposition to the automobile industry as witnessed by growth in share
PRICE PERFORMANCE, %
of revenues from BEVs (c.21% in H1FY22 up from 1.3% in FY19).
1MTH 3MTH 1YR
Market-share gains and new product introductions to provide superior growth… ABS (3.5) 12.4 0.0
REL TO BSE (5.1) 13.0
Sona has gained market share in key segments including BEV differential assembly (DA) (at
8.7% in FY21). Its share in differential gears / starter motors increased to 6.4%/5.0% in H1FY22 PRICE VS SENSEX
vs. 4.5%/2.5% in CY19. Further, it has developed new products (BLDC/PMSM motor with
controller, BSG, e-axle, etc.) and won orders for the same. This expands Sona’s addressable 300
market and would ensure superior growth as EV adoption progresses and accelerates. 250
…backed by prowess in motor and driveline products… 200
The new products are largely an extension of Sona’s existing expertise in motors and 150
differential (and other) gears. It is able to leverage the existing products by combining them 100
(differential assembly, e-axle) and/or improving functionality (BSG, traction motors). Strong 50
R&D focus (~6% of Revenues in FY21) is a key enabler. Jun-21 Aug-21 Oct-21 Dec-21
SONACOMS IN BSE Sensex
…with a healthy and growing order book…
Sona gets 80% of its revenues from top-10 customers, with most of whom it has more than a KEY FINANCIALS
decade long relationship. Additionally, 8 out of top 10 customers are non-Indian, with c. 75% Rs mn FY22E FY23E FY24E
of FY21 revenue coming from outside India. This underscores Sona’s global outreach where Net Sales 21,588 31,125 40,303
electrification is progressing much rapidly. The company has an order book of Rs 136bn EBITDA 6,056 9,012 11,814
(worth seven years of current revenue); Rs 12bn of which was won in Q2 itself. With high Net Profit 3,114 5,079 6,914
fixed asset turnover (c.4x currently), servicing the order book (capex) is unlikely to put a great EPS, Rs 5 9 12
stress on the balance sheet (D/E of 0.3x) PER, x 137.5 84.3 61.9
EV/EBITDA, x 71.6 48.1 36.4
…combined with superior margins and return ratios PBV, x 27.6 22.0 17.2
Sona has a consistent history of EBITDA margins in high 20s along with c.20%+ return ratios ROE, % 21.8 29.0 31.2
(RoE and RoCE) among component manufacturers, domestically and globally. We see no
imminent threat to these and expect Sona to maintain them with new product introductions.
Amar Kant Gaur, Research Analyst
Potential for high growth, superior returns to warrant higher multiples (+9197693 12627) agaur@phillipcapital.in
We expect EPS CAGR of 41% for FY21-25 with strong growth beyond FY25 as well (FY21-30
Saksham Kaushal, Research Analyst
EPS growth c.30%). We assign a BUY rating to the stock and set a DCF and P/E based target of
(+9199305 11043) skaushal@phillipcapital.in
Rs 915, implying 75x FY24 PE. High growth combined with superior return ratios and dearth
of pure EV plays (especially with global exposure) warrant high multiples.
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research
is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt
Securities Inc, an SEC registered and FINRA-member broker-dealer. Powered by EQUITEC
SONA BLW PRECISION FORGINGS LTD INITIATING COVERAGE
Focus Charts
Electrification to see rapid pick up going forward
Global Powertrain Split
ICE Micro Hybrid Mild Hybrid Full Hybrid BEV FCEV
100%
80%
60%
40%
20%
0%
CY15 CY20 CY23 CY25
Source: PhillipCapital India Research, RHP
Sona expanding product offerings largely targeting electric vehicles
Source: PhillipCapital India Research, Company Presentation
Multiple product introductions to expand the overall addressable market

Estimated Market Market Share
Product Segment Product Segment Competitors
Size (FY26) (current)
Differential PV Rs 350bn 8.7%* Borg Warner, JTEKT Corp, Dana, Americal Axle, GKN,
Assembly CV, Tractors Rs 75bn - Hyundai WIA Corp
Driveline
PV Rs 100bn American Axle, Showa Corp, Musashi Seimitsu,
Differential Gear 6.4%
CV, Tractors Rs 30bn Meritor, GKN
BSG PV Rs 140bn - Valeo, SEG Automotive, Continental, Hyundai Mobis

Starter Motor PV Rs 230bn 5.0% Denso, BorgWarner, SEG Automotive, Valeo, Hitachi
Motor High voltage Bosch, Valeo-Siemens, GKN, Schaeffler, LG, Hitachi,
PV Rs 1.7tn -
traction motor BorgWarner, ZF
BLDC / PMSM Mahle, SEG Automotive, Lucas TVS, EMF Innovations,
2W/3W Rs 40bn -
motor & controller Compageauto
Source: PhillipCapital India Research, Ricardo
* for CY 2020

Order book is well distributed across powertrains and vehicle segments
Differential gears content goes up with higher torque requirement

Vehicle Category Drive Type No. of DAs No. of DGs Realizations
Front Wheel Drive (FWD) 1 4 $
Rear Wheel Drive (RWD) 1 4 $

PV
Four Wheel Drive (4WD) 2 8 $$
All Wheel Drive (AWD) 2 8 $$
LCV Two Wheel Drive (2WD) 6 $$
M&HCV Four Wheel Drive (4WD) 20 $$$
Two Wheel Drive (2WD) 6 $$

Tractor
Four Wheel Drive (4WD) 18 $$$
Sona spent almost 6% of its revenues on R&D… …one of the highest among domestic competitors
R&D expense % of Sales R&D as % of Sales
1.0 7.0 Sona BLW Bharat Forge Bosch (India)
Rs bn
Endurance Minda Ind Sundaram Fasteners

6.0
0.8 Varroc Engg Wabco India Average
7%
5.0
6%
0.6
4.0 5%
3.0 4%
0.4
3%
2.0
0.2 2%
1.0
1%
0.0 0.0 0%
FY18 FY19 FY20 FY21 Avg FY17-19 FY20 FY21
Source: PhillipCapital India Research, Company Data Source: PhillipCapital India Research, Bloomberg

EPS growth to accelerate with CAGR of 41% for FY21-25e FCF should bounce back as investments subside
EPS Growth YoY (%) Adj. PAT Free Cash flow FCF conversion
16 70
10 150%
Rs bn
14 60
8
12 100%
50
10 6
40 50%
8 4
30
6 0%
2
20
4
-50%
0
2 10
0 0 -2 -100%
FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e
Source: PhillipCapital India Research, Company Data Source: PhillipCapital India Research, Company Data
Sona has consistently generated superior returns Higher returns with high growth warrant higher multiples
ROCE RoE
40 90
35 80
CATL
70 Sona
30
60 Comstar
25 Minda Ind
2-yr fwd P/E
50
20
40 Bosch India Motherson Aptiv Plc
15 Bharat Forge Sumi Endurance Tech
30
10
20 BorgWarner
Denso
5 Hyundai Valeo
10 Hota
Mobis Industrial Dana
0 0
FY19 FY20 FY21 FY22e FY23e FY24e FY25e 0 5 10 15 20 25 30
RoE
EV penetration has spiked in2Ws over the last year or so 3Ws are most penetrated owing to higher e-rickshaw volumes
EV Registrations EV Registrations
2W % of total 3W % of total
Thousands
30 2.5% 25.0 60.0%

Thousands
25 50.0%
2.0% 20.0
20 40.0%
1.5% 15.0
15 30.0%
1.0% 10.0
10 20.0%
0.5% 5.0
5 10.0%
0 0.0% 0.0 0.0%

Dec-17
Mar-18
Dec-18
Mar-19
Dec-19
Mar-20
Dec-20
Mar-21
Dec-21
Jun-18
Sep-18
Jun-19
Sep-19
Jun-20
Sep-20
Jun-21
Sep-21
Source: PhillipCapital India Research, Vahan Source: PhillipCapital India Research, Vahan

Investment Rationale
Beneficiary of regulatory push driving global electrification
Global EV (electric vehicle) sales (including hybrid vehicles) continues to rise. From
2015 to 2020, it has increased 5x to touch c.9.5mn units. This market is likely to grow
c.4x to over 41mn units by 2025. Within EVs, BEVs (battery electric vehicles) are likely
to grow the fastest, contributing more than 12% of global PV (passenger vehicle) sales
in 2025, vs. c.3% in 2020.
We believe EVs are at an inflection point and that government push and technology
advancement will aid their adoption rate. Administrations across the world are working
to address climate change and one of the key sources of greenhouse gas emissions is
automobiles. It is small wonder that governments are incentivizing EV production and
sales through fiscal incentives on both the demand side (subsidies) and the supply side
(charging infrastructure, lower taxes). Most governments have also tightened emission
norms and fuel-efficiency targets, and breaches now attract heavy penalties.
Concurrently, battery prices have come down, along with higher energy densities
through advancement in battery technology, thereby improving the total cost of
ownership of electric vehicles.
Electrification trend is picking up pace

Global Powertrain Split
ICE Micro Hybrid Mild Hybrid Full Hybrid BEV FCEV
100%
80%
60%
40%
20%
0%
CY15 CY20 CY23 CY25
Source: PhillipCapital India Research
Global OEMs are working aggressively on electrification

OEMs across the globe have announced aggressive plans to ensure compliance with
regulations and to maintain or attain leadership in EVs. The EU and US governments
have laid down parameters for OEMs, with each government setting targets for
electrification and emissions. While the US has set out a goal of 50% automobile sales
to be EVs by 2030, EU wants the reduction of emissions from new cars by 55% by 2030,
rising to 100% by 2035.
In addition, certain metro cities (such as Paris) in Europe have set targets of banning all
ICE vehicles from entering their municipal limits.

Companies have announced ambitious plans for EVs

OEM Target Year Outlay
0% ICE 2035
GM USD 35bn
40% EV 2030
Ford 40% EV 2030 USD 30bn
100% EV 2040
Volkswagen EUR 73bn
50% EV 2030
BMW 50% EV 2030 EUR 30bn
Daimler Ready to be all electric 2030 EUR 40bn
30 EVs 2030
Toyota Sell 3.5mn EVs 2030 USD 30bn
EV only Lexus 2035
70% EV Europe
Stellantis 2030 EUR 30bn
40% EV US
Renault >90% EV 2030 EUR 10bn
100% EV 2040
Honda 80% EV 2035 USD 46.3bn
40% EV 2030
Hyundai Sell 1.7 mn EVs 2026 USD 50bn
Jaguar - All electric 2030
JLR USD 3.5bn per year
100% EV 2036
Electrification will lead to increased content per vehicle and/or realizations

ICE with Micro-Hybrid BEV (Battery Electric
ICE ICE-Mild Hybrid ICE-Full Hybrids
(Start-Stop) Vehicle)
= = =/+ +
Bevel Gears 100 No design change No design change Certain design changes Increased durability and
requirement requirement required NVH requirements
= = =/+ +
Differential Assembly 100 No design change No design change Certain design changes Increased durability and
requirement requirement required NVH requirements
+ = =
Starter Motor 100 Improved design to No design change No design change NA
handle more duty cycles requirement requirement
+
BSG (Belt Starter NA/+
NA NA To provide torque assist NA
Generator) May or may not have it
and other functionality
++ ++
+/NA
May be one or more May be there at the
Traction Motor NA NA May be an additional
additional traction front or rear or both
traction motor
motors axles
Note: The components which are a part of the base ICE vehicle are depicted with 100 to indicate the starting point and subsequently a "+" indicates
an increase in revenue realisation and a "=" indicates that revenue realisation is not expected to change going forward.
Strong order book with a well-diversified customer base

Over the years, Sona has developed good customer relationships and caters to clients
from multiple geographies and segments, and with various product requirements. It
has a healthy order book of INR 136bn, which the company defines as the cumulative
revenues for the next 10 years from the programs that have not yet started. ~60% of
these orders are from EV customers, which brings credit to our belief that EV transition
will be a key enabler for Sona’s growth.
Sona’s order book comprised of 58 orders from 27 customers (details in the annexure)
at the end of FY21. This has grown to 92 programs at the end of H1FY22. Bulk of these
orders (58.5%) in revenue terms are from EVs, majority of which (53%) are from PVs.

Order book is well distributed across powertrains and segments
Top-10 customers contribute roughly 80% of overall revenues with more than 75% revenue coming from outside India
S. No. OEM/Supplier Segment Geography FY18 FY19 FY20 FY21
1 OEM PV, CV North America 3,674 3,643 2,766 2,523
2 OEM PV, CV Europe 1,449 2,068 2,374 2,296
3 OEM EV Global 1 22 164 1,951
4 OEM PV, CV, EV Global 170 191 281 1,015
5 Supplier PV, CV, OHV, EV Global 728 838 767 834
6 OEM PV, CV, EV India 807 984 632 730
7 OEM OHV Global 604 668 541 727
8 OEM PV, CV, OHV, EV India 603 688 588 643
9 Supplier PV, EV North America 1,355 1,343 954 602
10 OEM PV, CV Asia 39 348 472 536
Top 10 9,430 10,794 9,537 11,859
Top 10 % 79.1% 79.1% 80.8% 79.6%
11-20 1,644 2,139 1,721
Others 842 717 546
Total 11,917 13,650 11,804 14,889
Contribution from top-10 customers has remained c.80%... …but distribution is more evenly spread out
Top customers mix FY18 Top customers mix FY21
Others, 20 A, 17
Others, 21
A, 31
J, 0
J, 4
B, 15
I, 11 I, 4
H, 4
H, 5 G, 5
B, 12
G, 5 F, 5 C, 13
C, 0
F, 7 E, 6 D, 1 E, 6 D, 7
Source: PhillipCapital India Research Source: PhillipCapital India Research

Sona has long-standing relationships with most of its customers

Customer Duration of relationship (years)
Mahindra & Mahindra 23
Indian OEM of PVs, CVs and EVs 22
Global Tier 1 Supplier for PVs and CVs 22
TAFE 21
Dana 20
North American OEM of PVs and CVs 19
Maruti Suzuki 19
JLR 18
Indian OEM of OHVs - 3 18
Carraro 18
Indian Tier 1 supplier for CVs 18
CNH 17
Volvo Cars 15
John Deere 13
Escorts 13
North American Tier 1 supplier for PVs, CVs, OHVs and EVs 12
Linamar 6
Renault Nissan 6
Geely 5
Global OEM of EVs 4
Addressable market continues to expand with new product offerings
Traction motors (BLDC, PMSM)

Sona is leveraging its leadership in electric motors (starter motors) to offer traction
motors in domestic 2W/3W applications where power requirements are relatively
lower (<10kW). It has bagged orders from a couple of electric 2W OEMs to supply
motors (BLDC and PMSM) along with motor controllers.
This is a decent size opportunity for Sona as most 2Ws/3Ws are likely to transition to
electric powertrains by 2030. We estimate the domestic size of the electric traction
motor market for 2W/3W to touch Rs 160bn in 2030. At present, there is limited
competition in this business with the low market size providing Sona with an
opportunity to establish itself as a leader.
Belt-driven Starter Generator (BSG)

Sona is developing BSG motors for hybrid PV applications, to be used primarily in P0
configurations. We expect the market for BSG motors to expand in the medium term,
as the share of hybrid vehicles rises. Eventually, we expect the BSG market to shrink,
as hybrid vehicles give way to BEVs, rendering starter motors unnecessary. We expect
the global BSG market size potential to be USD 2.3bn in 2025, assuming 60% of hybrid
vehicles operating with BSG and total size of mild-hybrid vehicles at 19mn, and average
selling price at USD 200 per unit.
Integrated e-Axle
We expect Sona to leverage and combine its expertise in motors, generators, and
differential assembly, to offer a one-stop solution to its customers. We believe this
could be the biggest opportunity for Sona, and if the company’s offering is successful,
it could propel the company’s fortunes much further.

Many new products under development

Sona is looking to expand its offerings in its core business to include converters and
inverters (used in EVs) and high voltage traction motors which could be a huge business
opportunity (valued at USD 22.5bn in 2025, as per Ricardo report). Additionally, Sona
is also developing magnet-less motor to bring the overall costs and dependence on
imports down. The end goal is to produce an integrated solution to offer a ready
product for most BEV applications.
Technology roadmap
Multiple product introductions to expand the overall addressable market

Product Estimated Market Market Share
Product Segment
Segment Size (FY26) (current)
PV Rs 350bn 8.7%*
Differential Assembly
CV, Tractors Rs 75bn
Driveline
PV Rs 100bn
CV, Tractors Rs 30bn
BSG PV Rs 140bn -
Starter Motor PV Rs 230bn 5.0%
Motor High voltage traction
PV Rs 1.7tn -
motor
BLDC / PMSM motor &
2W/3W Rs 40bn -
controller
Source: PhillipCapital India Research, Ricardo
* for CY 2020

Differential gears and assemblies segment to sustain steady growth

Differential is a critical component of four-wheelers (as it enables vehicles to make a
turn) and needs to have high tolerance for torque from the engine and even more so
from the electric motor (which generally operates at a much higher RPM). Also, in case
of EVs, it needs to be refined to reduce overall NVH levels since there is no engine noise
to mask it. For differential gears and assemblies in BEVs, these specifications imply
higher costs and (as a result) higher realizations – up to 25% more.
Content per vehicle for DGs / DAs does not change materially for EVs vs. ICEs, though
the value may be higher. Higher penetration of 4-wheel drive (4x4) and All Wheel Drive
(AWD) vehicles would be a major determinant of growth in content per vehicle.
Therefore, higher realizations (for EVs) and increase in market share (currently at c.9%)
will largely drive Sona’s growth in this segment.
Differential gears content goes up with higher torque requirement

Vehicle Category Drive Type No. of DAs No. of DGs Realizations
Front Wheel Drive (FWD) 1 4 $
Rear Wheel Drive (RWD) 1 4 $
PV
Four Wheel Drive (4WD) 2 8 $$
All Wheel Drive (AWD) 2 8 $$
LCV Two Wheel Drive (2WD) 6 $$
M&HCV Four Wheel Drive (4WD) 20 $$$
Two Wheel Drive (2WD) 6 $$
Tractor
Four Wheel Drive (4WD) 18 $$$
In India, Sona has much higher market share in the driveline business segment,
garnering 55-60% / 80-90% / 75-85% market share in PVs / CVs / tractors. We expect
content per vehicle growth (in driveline) to be higher as the market shifts towards high
performance / higher tonnage / and high-HP products in each of the vehicle segments.
Higher market share in high torque applications (CVs and Tractors) is a testament to
Sona’s quality and preference by customers.
Sona has dominant position in Indian differential gear market
Differential Gears market share

80-90%
75-85%
55-60%
PVs CVs Tractors
Source: PhillipCapital India Research, Company Data

Focus on R&D led to evolution of core competencies

Sona has spent more than Rs 1.5bn on R&D over the last three years, spending as much
as 5.8% of its revenues on R&D in FY21. This strong focus has enabled it to develop a
proprietary gear design software to meet specific requirements of customers with
minimal constraints, high flexibility, and power density. It is also spending to develop
electrified systems with embedded software, which would enable improvement in
efficiency, reduction in CO2 emissions, higher range, functional safety and
cybersecurity (OTA).
Sona spent almost 6% of its revenues on R&D… …one of the highest among domestic competitors
R&D expense % of Sales R&D as % of Sales
1 7.0 Sona BLW Bharat Forge Bosch (India)
Rs bn
Endurance Minda Ind Sundaram Fasteners

6.0
0.8 Varroc Engg Wabco India Average
7%
5.0
6%
0.6
4.0 5%
3.0 4%
0.4
3%
2.0
0.2 2%
1.0
1%
0 0.0 0%
FY18 FY19 FY20 FY21 Avg FY17-19 FY20 FY21
PLI on advanced automotive tech to aid growth

Government of India has announced an outlay of Rs 259.38 bn for incentivising
domestic manufacturing of advanced automotive technology products and attract
investments. Focus of these incentives is towards electric vehicles with all categories
of electric vehicles (2W, 3W, 4W) being eligible for PLI incentives. Furthermore,
powertrain and transmission components for these EVs are also covered under the
aforementioned PLI scheme with incentives ranging from 8% up to 13%.
Given the current and planned product line-up for Sona is geared towards EV
powertrain, we expect Sona to greatly benefit from the PLI scheme.
Sona meets the eligibility requirements for component PLI… …with potential incentives of up to 13%
Eligibility Criteria Amount (Rs bn) Sona BLW Determined sales (Rs bn) Incentives
Global Group revenue Rs 5bn and above ✓ ≤2.5 8%
Investment (in fixed assets) Rs 1.5bn ✓ >2.5 to 5.0 9%
Cumulative New Investment >5.0 to 7.5 10%
Up to March 31, 2023 Rs 0.4bn  >7.5 11%
Up to March 31, 2024 Rs 1bn  Cumulative 5-year >12.5 additional 2%
Up to March 31, 2025 Rs 1.75bn  BEV and Hydrogen FCEV components Additional 5%
Up to March 31, 2026 Rs 2.2bn 
Up to March 31, 2027 Rs 2.5bn 
Additionally, govt. has also announced PLI scheme for Advanced Chemistry Cell (ACC)
Battery Storage with an outlay of Rs 181bn. This would provide further impetus for
growth and development of EVs in India and in turn, would be beneficial for Sona.

Electrification picking pace rapidly in India

EV adoption is picking pace domestically on the back of big impetus from the
governments (Centre and States) in the form of subsidies and incentives. Benefits
include direct subsidies, lower GST, lower or no registration costs, tax rebate on EV
loan etc. As a result, sales of electric vehicles (2W, 3W and PVs) has seen a big surge.
As per registration data on ‘Vahan’, for the month of December, approx. 2% of 2Ws
and 1% of PVs registered were EVs. This figure is relatively high for 3Ws at c. 50%.
Higher penetration of EVs in 3W is owing to higher penetration of e-rickshaws which
have a basic structure, are very low cost (with most of them running on Lead acid
batteries) and have good running economics. These numbers have seen sharp rise in
recent months and this momentum is expected to continue. This is significant with
government’s target of 30% EV penetration for cars and 80% for 2Ws/3Ws by 2030.
Most of the components of a large number of EVs being sold currently are imported
which would need to be localized to avail benefits of government subsidies. Sona has
developed motor and controller for low power applications (2W and 3W) and has
bagged orders from 3 domestic players (as of the end of Q2FY22) for the same. We
expect this to be a substantial opportunity for Sona’s growth domestically.
EV penetration has spiked across segments including 2Ws… …but electrification is pretty nascent in PVs…
EV Registrations EV Registrations
30 2W % of total 2.5% 3.0 PV % of total 0.9%
Thousands
Thousands
0.8%
25 2.5
2.0% 0.7%
20 2.0 0.6%
1.5%
0.5%
15 1.5
0.4%
1.0%
10 1.0 0.3%
0.5% 0.2%
5 0.5
0.1%
0 0.0% 0.0 0.0%
Dec-17
Mar-18
Dec-18
Mar-19
Dec-19
Mar-20
Dec-20
Mar-21
Dec-21
Dec-17
Mar-18
Dec-18
Mar-19
Dec-19
Mar-20
Sep-20
Dec-20
Mar-21
Dec-21
Jun-18
Sep-18
Jun-19
Sep-19
Jun-20
Sep-20
Jun-21
Sep-21
Jun-18
Sep-18
Jun-19
Sep-19
Jun-20
Jun-21
Sep-21
Source: PhillipCapital India Research, Vahan Source: PhillipCapital India Research, Vahan
…while 3Ws are most penetrated owing to higher e-rickshaws Significant opportunity for Sona in domestic EVs (2W/3W)
EV Volumes Unit cost Market size
EV Registrations Penetration (mn) (Rs) (Rs bn)
25 60% 2W
Thousands
3W % of total
FY22 1.5% 0.2 8,000 1.6
20 50%
FY26 25.0% 5.5 7,200 39.6
40% FY30 70.0% 18.0 6,480 116.6
15
30%
10 3W
20% FY22 45.0% 0.18 12,000 2.2
5 10% FY26 60.0% 0.45 10,800 4.9
FY30 90.0% 0.70 9,720 6.8
0 0%
Mar-18
Dec-17
Dec-18
Mar-19
Dec-19
Mar-20
Dec-20
Mar-21
Dec-21
Jun-18
Sep-18
Jun-19
Sep-19
Jun-20
Sep-20
Jun-21
Sep-21
Total Market Size in FY30 (Rs bn) 129.9
Source: PhillipCapital India Research, Vahan Source: PhillipCapital India Research

Strong profitability and return ratios support valuation

Sona has consistently performed well on financial parameters over the past and
continues to maintain superior return and profitability ratios. We expect it to maintain
its margins as it develops scale in new products, although over the years, gross profits
and realization for these new products (traction motors, BSG, etc) falls. Sona
commands a premium multiple over its global peers because of its superior return
ratios and the size of its potential opportunity.
Sona has consistently generated superior margins… …and returns over the years
16 EBITDA EBITDA Margin (%) 30 ROCE RoE
Rs bn
40
14
35
28
12
30
10 26 25
8 20
6 24
15
4 10
22
2 5
0 20 0
FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY19 FY20 FY21 FY22e FY23e FY24e FY25e
Sona’s EPS should more than triple over the next four years Higher returns with high growth warrant higher multiples
EPS Growth YoY (%)
16 70 90
14 60 80
CATL
12 70 Sona
50
60 Comstar
10 Minda Ind
2-yr fwd P/E
40 50
8
40 Bosch India Motherson Aptiv Plc
30
6 Bharat Forge Sumi Endurance Tech
30
20
4 20 BorgWarner
Denso
Hyundai Valeo
2 10 10 Hota
Mobis Industrial Dana
0 0 0
FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e 0 5 10 15 20 25 30
RoE

Valuation
Valuations are rich
Much of Sona’s growth is further out in the future as it is largely linked with EV
adoption. We value Sona using DCF and P/E. The growth opportunity is quite
significant, which, combined with superior and consistent return ratios implies rich
valuations. Additionally, valuations are expected to remain high for Sona given that it
gives investors the pure play opportunity to participate in the EV journey, not just
domestically but globally as well.
We forecast Sona’s revenue CAGR at 21% over FY21-30. Our assumption is based on
rapid electrification, both domestically and globally.
• We expect c.30% CAGR for Electric Vehicles (including hybrids) over FY21-26.
Sona’s differential assembly, traction motor, and BSG businesses will greatly
benefit from it. We expect market share gains in these businesses, which will more
than offset the decline in its starter motors business.
• Domestically, we expect its traction motors (and controller) business to provide a
huge growth opportunity (currently near zero), although the growth opportunity
in the differential business may not be as superior, because of limited potential to
gain market share (it already has high share).
• We expect EBITDA margins to remain fairly stable at 28% levels.
• We use WACC of 10% and a terminal growth rate of 5% for Sona.
• For P/E, we discount FY26e EPS to FY24e and assign a 60x multiple
Valuation Methodology
Methodology Value Assumptions
21% revenue growth over FY21-FY30. WACC of 10.0% and terminal

DCF 980
growth rate of 5%.
P/E 850 60x FY26e EPS discounted to FY24e
Average 915
What-if analysis of target price against WACC and terminal growth rate
WACC
980 11.4% 10.9% 10.4% 9.9% 9.4% 8.9% 8.4%
3.5% 635 674 719 771 830 900 983
4.0% 673 718 769 829 899 982 1,083
4.5% 716 768 827 897 981 1,082 1,208
G 5.0% 766 826 896 980 1,081 1,208 1,370
5.5% 825 895 979 1,081 1,208 1,370 1,586
6.0% 895 979 1,081 1,208 1,371 1,588 1,892
6.5% 978 1,081 1,208 1,372 1,589 1,895 2,356

Financial Analysis
Revenue CAGR of 33% over FY21-25e
We expect revenue to grow to Rs 48.6bn in FY25 from Rs 15.7bn in FY21 based on
following factors: (1) Strong order book (Rs 136bn), (2) order wins in existing products
(market share gains to continue), and (3) new product introductions (traction motors
– BLDC and PMSM, BSG, motor controllers, e-axle) and expansion within addressable
market (especially EVs).
Sona has delivered consistent margins over the years and we expect them to remain
stable in the near to medium term. The impact of higher RMC and squeeze by
customers (especially in the mass-market segments) is offset by improving scale and
new product introductions. However, there could be some pressure on margins over
the medium to long term, as competition rises.
Multiple levers to ensure high growth through FY25 and Margins to remain stable despite cost pressures
beyond
Revenue Growth YoY (%) 16 EBITDA EBITDA Margin (%) 30
Rs bn
60 50
Rs bn
14
50 40 28
12
30
40 10 26
20
8
30
10 6 24
20
0 4
22
10 (10) 2
0 (20) 0 20
FCF generation to improve as capex subsides

Sona’s PAT growth should be as impressive as its revenue growth, at 41% for FY21-25.
This is supported by high revenue growth and stable margins and is likely to taper
marginally beyond FY25 on a higher base. That said, FCF generation should start to
improve from FY23/FY24, as high capex (of Rs 4.5bn/Rs 3.3bn for FY22e/FY23e) will be
over, although FCF would largely lag earnings as the company guns for growth.
EPS growth to accelerate with CAGR of 39% for FY21-25e FCF should bounce back as growth capex subsides
EPS Growth YoY (%) Adj. PAT Free Cash flow FCF conversion
16 70
10 150%
Rs bn
14 60
8
12 100%
50
10 6
40 50%
8 4
30
6 0%
2
20
4
-50%
0
2 10
0 0 -2 -100%

Balance sheet to remain healthy with solid return ratios

Sona’s D/E is currently 0.3, and although this number may go up slightly in the near
term as it invests in new products and tech, it likely to come down in the medium term.
Along with a healthy balance sheet, Sona also enjoys strong return ratios driven by high
margins and asset turns. We expect its ROE/ROCE (one of the best in the industry) to
remain in high 20s or low 30s.
Debt to go up marginally as company invests in growth Return ratios to improve with growth, scale, and margins
Gross Debt Debt to Equity ROCE RoE
7 0.5 40
Rs bn
0.4 35
6
0.4 30
5
0.3
25
4 0.3
20
3 0.2
15
0.2
2 10
0.1
1 5
0.1
0 0.0 0
FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY19 FY20 FY21 FY22e FY23e FY24e FY25e
PC estimates vs. consensus

PC estimate Consensus Change
FY21e FY22e FY23e FY21e FY22e FY23e FY21e FY22e FY23e
Revenue 21,588 31,125 40,303 23,580 33,853 42,749 -8.4% -8.1% -5.7%
EBITDA 6,056 9,012 11,814 6,401 9,501 12,142 -5.4% -5.1% -2.7%
PAT 3,253 5,079 6,914 3,667 5,695 7,428 -11.3% -10.8% -6.9%
EPS 5.3 8.7 11.9 6.1 9.8 12.8 -12.5% -10.7% -7.0%
Source: PhillipCapital India Research, Bloomberg
Competitive benchmarking
Company Market Cap Revenue EBITDA % PAT % R&D % ROCE % ROE % D/E FY23 P/E
Sona BLW 5,909 211 28.1 15.8 5.9 39 28 0.3 77.5
Global Competitors
Valeo 7,576 18,766 13.1 (5.2) 10.1 18 24 0.8 12.5
BorgWarner 10,833 10,165 13.2 3.5 4.7 21 21 0.3 9.6
American Axle 1,092 4,711 16.1 (8.5) 2.5 10 80 8.1 5.6
Meritor 1,769 3,833 8.4 4.3 2.0 - 42 1.6 5.4
Dana 3,317 7,106 9.1 0.9 2.1 10 23 1.0 8.1
Hota Industrial 920 177 17.6 8.6 2.1 5 8 1.2 23.6
Aptiv Plc 44,913 13,066 14.0 15.3 7.8 19 18 0.2 36.2
Hyundai Mobis 20,193 31,098 7.5 3.6 2.8 15 7 (0.3) 8.1
Denso 66,509 46,569 13.3 1.6 10.0 15 10 (0.0) 16.9
CATL 208,038 7,300 - 11.7 0.2 17 19 (0.3) 67.6
Domestic competitors
Bharat Forge 4,475 854 13.6 1.2 1.4 1 5 0.5 24.1
Endurance Tech 3,224 863 16.2 8.0 1.4 20 20 (0.1) 27.8
Bosch India 6,811 1,278 12.3 7.9 1.0 11 9 (0.4) 30.7
Minda Ind 4,433 859 11.4 4.2 1.4 18 17 0.4 52.9
Motherson Sumi 9,507 7,673 7.7 2.6 0.2 9 12 0.3 23.8
Automotive Axles 319 122 7.3 2.5 10.1 6 5 (0.1) -
Varroc 748 1,523 3.5 (4.6) 0.8 (11) (17) 0.6 22.7
Note: Financial data for FY21/CY20; Figures in USD mn
Source: PhillipCapital India Research, Bloomberg

Risks to our investment case

High customer concentration
c.80% of Sona’s revenues come from top-10 customers. Even though its dependence
on a single customer has come down to 17% from 31% in FY18, overall concentration
is a key risk. Weak performance by any of these customers could have significant
impact on Sona.
Weakness in the auto sector globally

Sona derives c.75% of its business from outside India, especially from the US, Europe,
and China. Any change in the market dynamics in these countries, or in the overall
automobile sector, could be detrimental to the company.
Rapidly changing technology in EVs

Sona derives c.13% of its revenues from EVs. The technology direction for EVs (BEV,
HEV, FCEV) is still uncertain, and within EVs, technology for batteries, motors, etc., is
still evolving. A dramatic shift in these factors could render current technologies
unfeasible. Incrementally, new products developed by Sona could find limited
acceptance because of changes/advances in technology.
Increased competitive intensity

The global automotive market is highly competitive and advances in auto tech have
levelled the playing field, with limited advantages for incumbents vs. new entrants,
especially in EV tech. Incrementally, higher potential market size could entice more
players to come in. Also, OEMs could bring some of the critical components
manufacturing in-house, including battery, BMS, motors and controllers.
Pricing pressure from customers

EV technology is in a relatively nascent stage currently, and the scale of production is
quite low. As a result, costs are pretty high. Therefore, OEMs could put pressure on
suppliers to lower their margins, at least in the near term, as the technology matures
and scale is built up.
Exchange rate fluctuations

Since 75% of Sona’s revenues come from outside India, it is exposed to foreign currency
risk, so significant fluctuations in currencies (USD, EUR, CNY, JPY) could materially
affect its earnings.

Annexure: Company Profile

Brief History
• 1995 – Incorporated as ‘Sona Okegawa Precision Forgings Ltd’ a JV with Mitsubishi
Materials Corporation
• 1998 – Embarked on the production of differential bevel gears at its first plant in
Gurugram, Haryana
• 2005 – Commissioned a manufacturing plant in Pune, Maharashtra
• 2008 – Acquired Thyssen Krupp’s precision forging business
• 2013 – Rechristened as ‘Sona BLW Precision Forgings Limited’
• 2017 – Commenced operations in two new plants – Unit II and Unit III, located in
Gurugram, Haryana
• 2018 – Won first contract for supply of differential assembly for EV passenger car
segment
• 2019 – Acquired Comstar Automotive Technologies Pvt Ltd, and its subsidiaries
• 2019 – Started operations at new plant in Manesar, Haryana
• 2020 – Began vehicle-level trials for BSG with an OEM
• 2020 – Awarded contracts for BLDC (Brushless Direct Current) motor supply by
Indian electric 2W manufacturers
Facilities Location and Capacities
Plant details
Capacity
Country Location Facility Product
(mn units)
India Gurugram Manufacturing 28.7 Gears
India Chennai Manufacturing 3.8 Starter Motor
India Manesar Manufacturing 0.53 Differential Assemblies
India Pune Manufacturing 9.3 Gears
USA Tecumseh, MI Manufacturing 1.0 Starter Motor
Mexico Irapuato Manufacturing 1.0 Starter Motor
China Hangzhou Manufacturing 1.0 Starter Motor
Sweden Gothenburg Sales office
Germany Cologne Warehouse
Belgium Genk Warehouse

Product offerings
Product offerings
Product Applicability
Product Description
PV CV OHV 3W 2W
BEV & A mechanism including gears that transmits power to the
Differential BEV BEV BEV
Hybrid NA wheels differently allowing them to rotate at different speeds
Assembly
ICE ICE ICE ICE while executing a turn.
BEV &
BEV BEV BEV
Differential Gears Hybrid NA Gear arrangement which goes into the differential assembly
ICE ICE ICE ICE
Starter Motor Hybrid Hybrid NA NA NA
An electric device required to crank the engine and provide
(Micro Hybrid and Not Not Not
ICE ICE initial starting power to the engine.
Conventional) Present Present Present
Synchronous or asynchronous electric machine, which provides

Not Not
BSG Hybrid Hybrid NA torque to the powertrain in motor mode and produces
Present Present
electricity in generator mode.
Synchronous motor powered by direct current electricity to

drive the electric vehicles - PMSM for BEV and Hybrid PVs, BLDC
EV Traction Motors BEV & Not Not
BEV BEV for electric 2Ws and 3Ws. Motor control units regulate the
(BLDC and PMSM) Hybrid Present Present
power given to motors for providing the torque and speed to
vehicles and it also charges battery during braking.
Revenue break-up geographically Revenue break-up product-wise

Geography break-up Product break-up
Other Gears, Others,
2.8 1.3
Others, 4.8
China, 7.6
India, 25.0 Conventional Differential
Starter Gears, 27.8
Motors, 23.8
Europe, 26.5
North Differential Micro Hybrid

America, Assembly, Starter
36.1 17.6 Motors, 26.7
Source: Company Data, PhillipCapital India Research Source: Company Data, PhillipCapital India Research

Revenue break-up powertrain-wise Revenue break-up segment-wise

Powertrain break-up Segment break-up
ICE Battery EV,
Dependent, 13.8 Others, 0.1
25.1 OHV, 17.1
Micro Hybrid CV, 14.4

/ Hybrid,
26.7
PV, 68.4
Power-
source
Neutral, 34.4
Source: Company Data, PhillipCapital India Research Source: Company Data, PhillipCapital India Research
Competitive landscape
Product Estimated Market Market Share
Product Segment Competitors
Segment Size (FY26) (current)
PV Rs 350bn Borg Warner, JTEKT Corp, Dana, American Axle,
Differential Assembly 8.7%*
CV, Tractors Rs 75bn GKN, Hyundai WIA Corp
Driveline
PV Rs 100bn American Axle, Showa Corp, Musashi Seimitsu,
CV, Tractors Rs 30bn Meritor, GKN
Valeo, SEG Automotive, Continental, Hyundai
BSG PV Rs 140bn
Mobis
Denso, BorgWarner, SEG Automotive, Valeo,
Starter Motor PV Rs 230bn
Hitachi
Motor 5.0%
High voltage traction Bosch, Valeo-Siemens, GKN, Schaeffler, LG,
Crank Case Rs 1.7tn
motor Hitachi, BorgWarner, ZF
BLDC / PMSM motor & Mahle, SEG Automotive, Lucas TVS, EMF
2W/3W Rs 30bn
controller Innovations, Compageauto
* as of CY20
Shareholding pattern
Shareholding Pattern
Others, 3 Non-Institution, 4
FPI, 14
MFs, 12
Promoters, 67

Program Pipeline
Customer Program Name Product Customer Location
Global OEM of EVs Program B3 Differential Assembly Outside India
North American OEM of PVs and CVs2 Program K1 Conventional Starter Motor Outside India
European OEM of PVs and CVs2 Program L Micro-hybrid/Conventional Starter Motor Outside India
Global OEM of PVs, CVs and Evs Program M1 Micro-hybrid Starter Motor Outside India
Asian OEM of PVs and CVs2 Program N Micro-hybrid/Conventional Starter Motor Outside India
Indian OEM of Electric 2Ws- Motorcycles Program J PMSM Motor and Controller India
North American OEM of PVs and CVs2 Program K2 Micro-hybrid Starter Motor Outside India
Global OEM of PVs and EVs Program O Micro-hybrid/Conventional Starter Motor Outside India
European OEM of PVs and Evs Program H Differential Assembly Outside India
Global OEM of PVs, CVs and Evs Program M2 Conventional Starter Motor Outside India
Global Tier 1 Supplier for PVs, CVs, OHVs and EVs Program A1 Differential Gears Outside India
Chinese Tier 1 Supplier for Evs Program G Differential Assembly Outside India
North American Tier 1 Supplier for PVs and Evs Program P1 Differential Gears Outside India
Chinese OEM of PVs and Evs Program Q1 Micro-hybrid Starter Motor Outside India
North American OEM of PVs and CVs2 Program K3 Micro-hybrid Starter Motor Outside India
North American Tier 1 Supplier for PVs, CVs, OHVs, and EVs Program F Differential Gears Outside India
North American Tier 1 Supplier for PVs and EV Program P2 Differential Gears Outside India
Chinese OEM of PVs and EVs Program Q2 Micro-hybrid Starter Motor Outside India
Global OEM of PVs, CVs and Evs Program M3 Micro-hybrid Starter Motor Outside India
North American Tier 1 Supplier for PVs, CVs, OHVs, and EVs Program F2 Differential Gears India
Indian OEM of PVs, CVs and Evs Program R1 Other Gears India
Global OEM of PVs, CVs and EVs Program M4 Conventional Starter Motor India
Indian OEM of OHVs - 2 Program S Differential Gears India
Indian OEM of OHVs- 3 Program T1 Other Gears and Differential Assembly India
Indian Tier 1 Supplier for CVs Program U1 Differential Gears and other gears India
Global OEM of OHVs - 1 Program V1 Differential Assembly Outside India
Indian OEM of PVs, CVs, OHVs and EVs Program E1 Differential Gears India
Indian OEM of Electric 2Ws- Scooters Program C BLDC Motor India
Indian OEM of OHVs- 1 Program W1 Differential Gears India
Indian OEM of Farm Equipment Program X Other gears India
Indian OEM of CVs - 1 Program Y Conventional Starter Motor India
Global Tier 1 Supplier for PVs, CVs, OHVs and EVs Program A4 Differential Gears India
Global Tier-1 Supplier for OHVs Program Z Differential Gears Outside India
European OEM of Farm Equipment Program AA Other gears India
Global Tier 1 Supplier for PVs, CVs, OHVs and EVs Program A5 Differential Gears and other gears India
Indian OEM of OHVs- 2 Program AB1 Differential Gears and other gears India
Indian Tier 1 Supplier for CVs Program U2 Differential Gears India
Indian OEM of OHVs- 1 Program W2 Differential Gears and other gears India
Indian OEM of OHVs- 2 Program AB2 Differential Gears India
Indian OEM of OHVs- 3 Program T2 Other gears India
Indian OEM of PVs, CVs and EVs Program R2 Other gears India
Global OEM of CVs and OHVs Program AC Differential Gears India
Indian Tier 1 Supplier for CVs Program U3 Differential Gears India
Indian OEM of OHVs- 2 Program AB3 Other gears India
Indian OEM of PVs, CVs and EVs Program R3 Other gears India
Indian OEM of OHVs- 2 Program AB4 Other gears India
Indian OEM of OHVs- 1 Program W3 Other gears India
Indian OEM of PVs, CVs, OHVs and EVs Program E2 Differential Gears India
Global OEM of EVs Program B4 Differential Assembly Outside India
Source: PhillipCapital India Research, Company Data

Financials
Income Statement Cash Flow
Y/E Mar, Rs mn FY21 FY22E FY23E FY24E Y/E Mar, Rs mn FY21 FY22E FY23E FY24E
Net sales 15,663 21,588 31,125 40,303 Pre-tax profit 3,000 4,536 7,082 9,640
Growth, % 28.4 37.8 44.2 29.5 Depreciation 969 1,357 1,629 1,873
Other operating income - - - - Chg in working capital (2,070) (1,186) (2,060) (1,489)
Raw material expenses 6,453 9,218 13,384 17,451 Total tax paid (528) (1,283) (2,002) (2,726)
Employee expenses 1,474 1,666 1,966 2,320 Cash flow from operating activities 1,427 3,749 4,973 7,623
Other Operating expenses 3,325 4,648 6,763 8,718 Capital expenditure (2,189) (4,500) (3,300) (2,500)
EBITDA (Core) 4,410 6,056 9,012 11,814 Chg in investments 0 - - -
Growth, % 35.5 37.3 48.8 31.1 Chg in marketable securities - - - -
Margin, % 28.2 28.1 29.0 29.3 Cash flow from investing activities (1,561) (4,500) (3,300) (2,500)
Depreciation 969 1,357 1,629 1,873 Free cash flow 104 (520) 1,906 5,357
EBIT 3,441 4,699 7,383 9,942 Equity raised/(repaid) - - - -
Growth, % 39.2 36.6 57.1 34.7 Debt raised/(repaid) 608 4,000 (1,000) (1,000)
Margin, % 22.0 21.8 23.7 24.7 Dividend (incl. tax) (904) (750) (1,162) (1,499)
Interest paid 325 325 325 325 Cash flow from financing activities (667) 2,925 (2,488) (2,824)
Other Income 23 23 23 23 Net chg in cash (800) 2,174 (815) 2,299
Non-recurring Items - - - -
Pre tax profit 3,139 4,397 7,082 9,640
Tax provided 848 1,283 2,002 2,726
Profit after tax 2,291 3,114 5,079 6,914
Valuation Ratios
Minorities/JV shares - - - - FY21 FY22E FY23E FY24E
Net Profit 2,291 3,114 5,079 6,914 Per Share data
Growth, % 3.3 35.9 63.1 36.1 EPS (INR) 3.9 5.3 8.7 11.9
Net Profit (adjusted) 2,291 3,114 5,079 6,914 Growth, % 3.3 35.9 63.1 36.1
Unadj. shares (m) 583 583 583 583 Book NAV/share (INR) 22.4 26.6 33.4 42.6
Wtd avg shares (m) 583 583 583 583 FDEPS (INR) 3.9 5.3 8.7 11.9
CEPS (INR) 5.6 7.7 11.5 15.1
CFPS (INR) 2.4 6.4 8.5 13.1
Balance Sheet DPS (INR) 1.5 1.1 1.7 2.1
Y/E Mar, Rs mn FY21 FY22E FY23E FY24E
Cash & bank 249 2,423 1,609 3,908 Return ratios
Marketable securities at cost - - - - Return on assets (%) 11.4 12.4 16.6 19.7
Debtors 4,170 4,679 6,374 7,497 Return on equity (%) 18.5 21.8 29.0 31.2
Inventory 3,056 4,011 5,516 6,428 Return on capital employed (%) 13.9 13.6 19.3 22.3
Loans & advances - - - - ROIC (%) 14.0 15.0 20.4 25.4
Other current assets 735 735 735 735
Total current assets 8,209 11,848 14,233 18,568 Turnover ratios
Investments - - - - Asset turnover (x) 3.7 2.9 3.4 4.1
Gross fixed assets 4,656 9,156 12,456 14,956 Sales/Net FA (x) 1.2 1.3 1.7 2.2
Less: Depreciation (1,207) (2,564) (4,193) (6,065) Working capital/Sales (x) 3.4 2.7 3.4 3.1
Add: Capital WIP 832 832 832 832 Receivable days 75.8 74.8 64.8 62.8
Net fixed assets 12,998 16,141 17,812 18,439 Inventory days 141.9 139.9 129.9 124.9
Non - current assets 541 541 541 541 Payable days 96.2 94.2 84.2 82.2
Total assets 21,748 28,530 32,586 37,548 Working capital days 107.7 134.9 108.2 117.9
Trade Payables 2,241 2,519 3,659 4,206 Liquidity ratios

Provisions 73 73 73 73 Current ratio (x) 2.3 3.1 2.8 3.3
Total current liabilities 3,589 3,867 5,007 5,554 Quick ratio (x) 0.3 0.3 0.3 0.4
Non - current liabilities 7,361 11,639 11,779 11,326 Interest cover (x) 10.6 14.5 22.7 30.6
Total liabilities 18,159 24,663 27,579 31,994 Total debt/Equity (x) 28.9 50.0 34.8 23.2
Paid - up capital 5,730 5,730 5,730 5,730 Net debt/Equity (x) 27.0 34.4 26.5 7.5
Reserves & surplus 7,309 9,812 13,729 19,144
Minorities - - - - Valuation
Shareholders’ equity 13,039 15,542 19,459 24,874 PER (x) 186.9 137.5 84.3 61.9
Total equity & liabilities 21,748 28,530 32,586 37,548 PEG (x) yoy growth 56.4 3.8 1.3 1.7
Price/Book (x) 32.8 27.6 22.0 17.2
EV/Net sales (x) 27.6 20.1 13.9 10.7
EV/EBITDA (x) 97.9 71.6 48.1 36.4
EV/EBIT (x) 125.5 92.3 58.7 43.3
Source: Company, PhillipCapital India Research

Rating Methodology
We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.
We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock.
The categorisation of stock based on market capitalisation is as per the SEBI requirement.
Large cap stocks

Rating Criteria Definition
BUY >= +10% Target price is equal to or more than 10% of current market price
NEUTRAL (10% > to < +10% Target price is less than +10% but more than (10%
SELL <= (10% Target price is less than or equal to (10%.
Mid cap and Small cap stocks

Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL (15% > to < +15% Target price is less than +15% but more than (15%
SELL <= (15% Target price is less than or equal to (15%.
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This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at
times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.
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Date: 2022.01.10 15:28:37 +05'30'

Sona BLW Precision Forgings LTD: A Local Exotic Option

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Sona BLW Precision Forgings LTD: A Local Exotic Option

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INSTITUTIONAL EQUITY RESEARCH

Sona BLW Precision Forgings Ltd (SONACOMS IN)

…backed by prowess in motor and driveline products… 200

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Sona expanding product offerings largely targeting electric vehicles

Source: PhillipCapital India Research, Company Presentation

Multiple product introductions to expand the overall addressable market

BSG PV Rs 140bn - Valeo, SEG Automotive, Continental, Hyundai Mobis

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

Order book is well distributed across powertrains and vehicle segments

Source: PhillipCapital India Research, Company Presentation

Differential gears content goes up with higher torque requirement

Front Wheel Drive (FWD) 1 4 $

Rear Wheel Drive (RWD) 1 4 $

All Wheel Drive (AWD) 2 8 $$

LCV Two Wheel Drive (2WD) 6 $$

M&HCV Four Wheel Drive (4WD) 20 $$$

Two Wheel Drive (2WD) 6 $$

Endurance Minda Ind Sundaram Fasteners

Page | 3 | PHILLIPCAPITAL INDIA RESEARCH

30 2.5% 25.0 60.0%

0 0.0% 0.0 0.0%

Page | 4 | PHILLIPCAPITAL INDIA RESEARCH

Electrification trend is picking up pace

Global OEMs are working aggressively on electrification

Page | 5 | PHILLIPCAPITAL INDIA RESEARCH

Companies have announced ambitious plans for EVs

Electrification will lead to increased content per vehicle and/or realizations

Strong order book with a well-diversified customer base

Page | 6 | PHILLIPCAPITAL INDIA RESEARCH

Order book is well distributed across powertrains and segments

Source: PhillipCapital India Research, Company Presentation

Top customers mix FY18 Top customers mix FY21

Source: PhillipCapital India Research Source: PhillipCapital India Research

Page | 7 | PHILLIPCAPITAL INDIA RESEARCH

Sona has long-standing relationships with most of its customers

Addressable market continues to expand with new product offerings

Traction motors (BLDC, PMSM)

Belt-driven Starter Generator (BSG)

Page | 8 | PHILLIPCAPITAL INDIA RESEARCH

Many new products under development

Source: PhillipCapital India Research

Multiple product introductions to expand the overall addressable market

Page | 9 | PHILLIPCAPITAL INDIA RESEARCH

Differential gears and assemblies segment to sustain steady growth

Differential gears content goes up with higher torque requirement

Sona has dominant position in Indian differential gear market

Differential Gears market share

PVs CVs Tractors

Source: PhillipCapital India Research, Company Data

Page | 10 | PHILLIPCAPITAL INDIA RESEARCH

Focus on R&D led to evolution of core competencies

Endurance Minda Ind Sundaram Fasteners

PLI on advanced automotive tech to aid growth

Page | 11 | PHILLIPCAPITAL INDIA RESEARCH

Electrification picking pace rapidly in India

Total Market Size in FY30 (Rs bn) 129.9

Source: PhillipCapital India Research, Vahan Source: PhillipCapital India Research

Page | 12 | PHILLIPCAPITAL INDIA RESEARCH

Strong profitability and return ratios support valuation

Page | 13 | PHILLIPCAPITAL INDIA RESEARCH

21% revenue growth over FY21-FY30. WACC of 10.0% and terminal

P/E 850 60x FY26e EPS discounted to FY24e