What Sona BLW’s Novelic acquisition could mean for the auto ancillary stock?

What Sona BLW’s Novelic acquisition could mean for the auto ancillary stock?


Shares of Sona BLW Precision Forgings (Sona Comstar) rallied up to 8% to 458 apiece on the BSE in Tuesday’s trading session after the auto component maker said it will acquire 54% stake in Serbia-based Novelic for 40.5 million euro (around 356 crore) enabling it to foray into the advanced driver assistance systems sensor market.

“While the acquisition may appear small in the overall scheme of things, we like the acquisition as it: i) Adds another revenue stream. ii) Complements its focus in the EV space. iii) Provides an option to scale the business and develop adjacencies in conjunction,” said brokerage Edelweiss.

The brokerage added that post-money valuation of EUR75 at 8.1x CY22 sales can be justified for the huge option value in a fast-expanding market. SONA aspires to achieve revenues of EUR100mn aided by industry tailwinds and leveraging its established customer relationship. Meanwhile, it has maintained ‘REDUCE’ stance on the auto ancillary stock with a revised target price of 401.

Sona BLW said the 40.5 million euro acquisition would be taken ahead through a combination of primary and secondary purchases with a staggered payment structure in the ratio of 60:20:20. It expects the acquisition to be EPS accretive for Sona from the first year itself.

“While the vertical will not contribute meaningfully to SONACOMS financials in the near term (with ~3% revenue contribution in FY23), it could be a 10%-15% revenue contributor by FY29 if it achieves management’s expectation of USD100m revenues in 6- 7 years. We believe this is a positive development for the company as its offers strong growth opportunities over the long term in the autonomous and connected technology,” said another brokerage Motilal Oswal.

“SONACOMS remains a good proxy play for the global electrification trend with a ~25% revenue mix from EVs and a ~68% mix in the order book. This, along with its focus on expanding product portfolio, global scale, and expanding customer base, shall translate into strong earnings growth and healthy capital efficiency. However, valuations at 44.8x/33.6x FY24E/FY25E consol EPS largely factor in these positives. Maintain Neutral with a target price of 472,” Motilal Oswal added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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