Sona BLW erases early gains after brokerages see limited upside

Sona BLW Precision Forgings Limited squandered early morning gains to trade more 3 percent lower on July 28, with 16 lakh shares changing hands on the NSE against the one-month average of 18 lakh shares.

After touching a high of Rs 605, the stock erased the gains to slip into the red as brokerages see a limited upside to the auto component maker.

On July 27, Sona BLW reported a 47 percent year-on-year increase in consolidated net profit at Rs 112 crore in the June quarter.

Revenue from operations rose to Rs 731 crore against Rs 584 crore in the year-ago period, the company, also known as Sona Comstar, said in a regulatory filing.

“We have continued to progress on all our key strategic priorities. With four new BEV (Battery Electric Vehicle) program wins, our net order book grew to Rs 22,000 crore, of which EVs contributed 78 per cent,” Managing Director & Group Chief Executive Officer Vivek Vikram Singh said.

Kotak Institutional Equities has said EBITDA (earnings before interest, tax, depreciation and amortization) was marginally below its estimates due to lower-than-expected revenue print, partly offset by a richer product mix.

“We believe current margins are not sustainable over the medium term as we expect the incremental growth to be driven by the motor business, which is margin dilutive, besides pricing pressure from original equipment manufacturers (OEMs),” it said.

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The company’s EBITDA margin improved 360 basis points year on year to 27.8 percent. One basis point is one-hundredth of a percentage point.

Nuvama Institutional Equities also said that sustaining outperformance of this magnitude is improbable for Sona BLW  in the long run due to scale disadvantage and challenges in sustaining market share.

The company, however, has a robust order book. As of June 2023, the company’s order book stood at Rs 22,000 crore. “Empirical evidence indicates that it is difficult to maintain such growth momentum beyond a particular size,” analysts at Nuvama wrote in a note on July 27.

At 11.33 am, the stock was trading at RS 565.10 on the National Stock Exchange, down 4.47 percent from the previous close.

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