Sona BLW makes a tepid debut; lists at 4% premium over issue price

The stock listed at Rs 302.40, a 4 per cent against the issue price of Rs 291 per share on the BSE

Sona BLW Precision Forgings (Sona Comstar) made a quiet debut on the bourses, with the stock getting listed at Rs 302.40 -- a 4 per cent premium over its issue price of Rs 291 per share on the BSE on Thursday. On the other hand, on the National Stock Exchange, it opened at Rs 301. However, post listing, the stock hit a low of Rs 295 on the BSE and NSE.

At 10:09 am, Sona Comstar was trading at Rs 311, 7 per cent above its issue price on the BSE with nearly 12 million shares having changed hands on the NSE and BSE.

The initial public offer (IPO) of Sona Comstar had witnessed a decent response as the issue got subscribed by 2.28 times. The qualified institutional buyers (QIBs) category was subscribed 3.46 times while the retail individual investor’s category was subscribed 1.58 times. The non-institutional investor’s category was subscribed 0.39 times.

According to the company's draft prospectus, proceeds from fresh issue will be used for repayment and pre-payment of identified borrowings in full availed by the company to the extent of Rs 241.12 crore and balance for general corporate purposes.

Sona Comstar is primarily engaged in designing, manufacturing and supplying highly engineered, mission critical automotive systems and components such as differential assemblies, differential gears, conventional and micro-hybrid starter motors, BSG systems, EV traction motors [Brushless direct current (BLDC) motor and Permanent magnet synchronous motor (PMSM)] and motor control units to automotive original equipment manufacturers (OEMs) across US, Europe, India and China, for both electrified and non-electrified powertrain segments.

The company is one of the few companies globally, with the ability to design high power density EV systems handling high torque requirements with a lightweight design, while meeting stringent durability, performance and NVH specifications, enabling EV manufacturers to enhance the vehicle range, acceleration and the overall efficiency.

Given this, analysts at ICICI Securities believe Sona Comstar provides an exciting play on electrification and possesses healthy financial strength but valuations proposed are rich (around 74x P/E on FY21 basis).

"Nevertheless, we believe the company offers a good investment case on the back of strong growth prospects. Accordingly, we recommend 'Subscribe' only for long term. Slower than anticipated revival in auto sales volumes, steep rise in metal prices, and Forex transactional impact on financials remain the key concerns for the company," the brokerage firm said.

Those at Sharekhan, meanwhile, said the company has a strong margin profile due to its critical components offerings, in India as well as globally. In addition, the company makes superior return ratios. In FY21, the company’s return on net worth (RONW) stood at 16.5 per cent, which was better than most of its peers.

"The company’s strong established relationships with leading OEMs in India and globally, improved outlook of automobile industry, gain from its strong manufacturing and engineering capabilities, and growing opportunities in EV space would help in improving growth prospects in the coming years," the brokerage firm said.