Kotak sees over 10% upside in this newly listed stock; sets target price at Rs 475

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Kotak Institutional Equities initiated the coverage on the recently listed Sona BLW Precision with an ‘Add’ rating and set a target price of Rs 475. The brokerage believes that the company’s revenues are likely to grow at 28% annually over FY2021-25 driven by strong growth in electric vehicles globally and an increase in market share led by the addition of new original equipment makers as well as new products.

Shares of the company traded 0.27% higher at Rs 423 at around 9.18 am (IST). On the other hand, the benchmark BSE Sensex was up 0.06% at 54,400.

Investment Rationale

The company has an 8.7% market share in the electric differential electric assembly market in the world and Kotak believes that the company’s market share will reach around 20% by FY2025E led by new order wins.

“We estimate the differential assembly market in electric vehicles will likely grow by 3 times over FY2021-25E, which will propel Sona Comstar’s differential assembly exports to increase by 7.7 times during this period. The company also manufactures starter motors for ICE (internal combustion engine)/hybrid vehicles, which will benefit from market share gains led by supplier consolidation and faster growth of hybrid vehicles in Europe,” Kotak said in a report.

At the fair value, Kotak added that Sona BLW would trade at 53.9 times PE on FY2023E consolidated EPS and 42.8 times on FY2024E EPS, which is at a significant premium to the global auto component universe due to superior growth prospects and best-in-class return ratio.

The auto component maker made its debut on the stock exchanges on June 24. The initial public offering (IPO) of the company was subscribed 2.28 times on the last day of subscription on June 16. The IPO received bids for 24,43,02,138 shares against 10,71,05,262 shares on offer, according to an update on the NSE.

The portion meant for Qualified Institutional Buyers(QIBs) was subscribed 3.46 times, non-institutional investors 39 per cent, and retail individual investors (RIIs) 1.57 times.

The initial public offer of up to Rs 5,550 crore comprised a fresh issue of up to Rs 300 crore and an offer for sale of up to Rs 5,250 crore. The price range for the offer was fixed at Rs 285-291 per share.