There is a new IPO named Sona Comstar. We discuss the company’s business model, financials, IPO details such as date, price band, lot size, pros and cons of the IPO.
The objective of the Sona Comstar IPO
There are mainly 2 reasons. The first being the company has 241 Crores worth of debt and will repay fully or partly with the proceeds of the IPO. And second is that the company wants to use the proceeds for other corporate purposes.
The company Sona Comstar
Sona BLW Forgings Ltd was incorporated in 1995 and is one of the leading companies in the automotive sector in India. The company designs manufacture, and supplies mission-critical products like differential assemblies, gears, micro-hybrid starter motors, etc. Now differential gear is a need in every vehicle. Whenever your car turns, it requires the outer wheel to spin faster as compared to the inner wheel. Now if both the wheels are connected with that one single rod, then there are chances that the car might skid or shift. This is why a differential gear is attached between the two wheels. That facilitates power to the wheels with the difference in the speed of the wheels.
Sona Comstar products market share
Sona Comstar comes in the top 10 global companies in differential gear and is one of the largest exporters of starter motors. It has 9 facilities across India, China, Mexico, and the US of which 6 are in India. It has a market share of 5% in differential gears. 3% in starter motors, and 8.7% in BEV differential assemblies. It also supplies directly to many Original Equipment Manufacturers (OEMs). It supplies 6 out of 10 passenger vehicle OEMs. 3 out of top 10 commercial vehicle OEMs. And 7 out of the top 8 global tractor OEMs. 75% of its revenue comes from exports, and 25% from domestic sales. Out of the 75%, 36.1% comes from North America, 25.1% from Europe, and 7.6% from China.
As you can see on the image, the products, and their end applicability. The company claims that it can manufacture lightweight design and high-power density EVs that can handle high-torque requirements. Torque is a twisting force that facilitates the rotation motion. The company’s EV sales have given a CAGR of 35.8% since FY18. The first 9 months of FY21 ended in Dec 2020. 13.7% of the total sales were derived from the BEV market.
About the Industry
From 2020 to 2025, the BEV market expects to grow by a CAGR of 36%. The Bev’s global production is expecting to grow by 5 times. From 2.3 million in CY20 to 11.2 million in CY25. According to a CRISIL report, demand for electric two-wheelers expectes to grow at a CAGR of 72-74% from FY21 to FY26. From CY21 to CY25, demand for electric three-wheelers is expecting to grow at a CAGR of 46% to reach 4 lakh units. According to a CRISIL report, the passenger segment of India is expecting to grow at a CAGR of 9-10%. And the commercial vehicle market at a CAGR of 12-14% from FY21 to FY26.
You can see the image, the production outlook of both segments. The Government of India has brought a Production Linked investment scheme of about Rs. 57042 crores. That can encourage the manufacturing sector, increase exports, and can enhance the component ecosystem.
Financials of the company
You can see on the image, the total assets, revenue, and profit after tax.
Its PE ratio is 77.6 as compared to the industries at 33.06. Its operating profit margin (OPM) is 21.17%. The net profit margin (NPM) is at 13.17%. And Return on equity (ROE) is at 16.75%. This company’s 2-year sales have been growth by 49.43% CAGR, and profit by 11.44% CAGR. The company’s debt-equity ratio is 0.26.
Pros of investing in the Sona Comstar IPO
- The Company offers comprehensive coverage in CV, PV, and Tractor segments in both EV and ICE spaces.
- The company has a good geographical diversification. 36% in North America, 25% in Europe, and 25% in India.
- And the company has good, and long-lasting relations with top vehicle manufacturing companies. Like Ampere, Ashok Leyland, CHN, Daimler, Escorts, Escorts Kubota, Geely, Jaguar Land Rover, Jhon Deer, Mahindra & Mahindra, Mahindra electric, Maruti Suzuki, Renault Nissan, revolt IntelliCorp, TAFE, Volvo, and Volvo Eicher.
- The company’s revenue has grown by 10.9% CAGR from 2016 with an EBITDA margin of 28.2%.
- The Company’s Focus has now shifted from ICE to BEV, hybrid/micro-hybrid. And power source neutral products constitute 74.9% of sales.
You can see on the image, the past 3 year revenue-related data.
Cons of investing in the Sona Comstar IPO
- The first is the high dependence on the US, and Indian auto markets.
- The next is that the company is customer concentrated. The majority of the sales are concentrate on a few customers. 48% of the sales are concentrate on the top 3 customers, and 80% on the top 10.
- The next is that this industry requires a lot of R&D, capital expenditure, and innovation takes time.
- The next is that this company is a very small player in the highly competitive market. There are at least 10 bigger players like Motherson Sumi, Sundaram Clayton, Bosch, and many more.
Important dates regarding the Sona Comstar IPO
Its bidding is open from 14th to 16th of June, and the tentative listing date is kept 24th June. Its price band is between Rs.285 to Rs.291, and one lot is about 51 shares. The total size of the IPO is Rs.5550 Crores. Out of which, 300 Crores is a fresh issue, and the remaining 5250 Crores is OFS.