Sona BLW Q2 Review - Business Diversification Continues; Yes Securities Stays Neutral Given Limited Upside

Yes Securities Report

Acquisition of Escorts Kubota Ltd.’s railway division was in-line with Sona BLW Precision Forgings Ltd.’s mission to expand beyond auto into broader mobility space. The transaction is valued at 1.6 times enterprise value/sales (FY24) for a total cash consideration of Rs 16 billion is attractive for a business with revenue and Ebit compound annual growth rate of ~16%/~15% over FY19-24 with Ebit margins of ~19% in FY24.

Despite, railway division is market leader in railway braking, we believe synergies such as cross selling, new product pipeline to accrue only in the long term given long gestation.

While we are yet to integrate railway division financials, we expect it would incrementally contribute 14-15% to FY27 EPS. The business can potentially grow at 20% CAGR over FY24-27E, we believe.

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