Sona BLW Shares Slip On Kotak Securities Downgrade To 'Sell'
Shares of Sona BLW Precision Forgings Ltd. fell after Kotak Securities Ltd. downgraded the stock to 'sell' citing high valuations.
The brokerage has a target price of Rs 650, an implied downside of 16.96%, according to its note.
The stock fell as much as 2.6% to Rs 776.2 apiece in early trading and closed 2.16% lower on Thursday. That compared with a 0.16% advance in the benchmark Nifty 50.
Kotak Securities cited unfavourable risk-reward for the stock due to high valuations and that the medium-growth opportunities were already priced in. It will be an "uphill task" for Sona BLW to maintain 24-25% EBIT margin, it said.
While the supplier of precision automotive components and motors was able to penetrate into North America and China for electric vehicles, it has been unable to win orders from European, Korean and Japanese original equipment makers, Kotak Securities said. That's significant as the European automakers like the Volkswagen Group have been very aggressive in new launches and the share of OEMs from the continent in the battery-powered vehicles has risen from 13% in 2017 to 24% in 2020.
Unless the company penetrates into Europe and Japan, it will be difficult to attain the 40% market share in EV differential assembly—which allows different wheel speeds—as implied by the reverse discounted cash flow valuation of Sona BLW, the brokerage said.
The current market price of the company has built in 25% share for Sona BLW in the domestic electric two-wheeler traction motor segment. But with rising competition, Sona BLW is likely to find maintaining current profitability and market share challenging, it said.
Other highlights of Kotak Securities' view on Sona BLW:
Expects the company to deliver a "strong" revenue growth over the medium term on a Rs 13,600-crore order book as of September 2022.
Stock is currently trading at 63 times FY24 EPS, which is expensive.
Expects EPS to grow at 40% CAGR over FY2021-25E.
Of the six analysts tracking the company, four maintain a 'buy', and one each suggest a 'hold' and a 'sell', according to Bloomberg data. The consensus price of analysts' forecasts implies a downside of 9%.