Sona Comstar IPO: Here’s All You Need To Know
Gear wheels sit in a rack of an automotive component washing machine in India. (Photographer Dhiraj Singh/Bloomberg)

Sona Comstar IPO: Here’s All You Need To Know

Sona BLW Forgings Ltd. (Sona Comstar) will sell shares at Rs 285-291 apiece in its three-day initial public offering starting on June 14, the second such by an auto-parts maker this year.

The proposed Rs 5,550-crore IPO that will close on June 16 comprises a fresh issue worth Rs 300 crore and a offer-for-sale worth Rs 5,250 crore by a Blackstone entity—Singapore VII Topco III Pte Ltd.—according to its red herring prospectus. The company will use Rs 241 crore from the fresh issue’s proceeds to pare debt.

At the upper end of the price band, the company, according to BloombergQuint’s calculations, is valued at close to Rs 17,000 crore.

Key Details

  • Fresh issue: Aggregating up to Rs 300 crore.
  • Offer for sale: Rs 5,250 crore.
  • Minimum bid size: 51 equity shares.
  • Listing: NSE and BSE.
  • Book running lead managers: Kotak investment banking, Credit Suisse, JM financial, JP Morgan, Nomura, KFin Technologies.

Who Owns Sona Comstar?

After the IPO, Blackstone and Sona Autocomp will hold 33-34% stake each in the company.

Business 

Sona Comstar, one of India’s leading auto-parts firms, designs, makes and supplies electrical and non-electrical powertrains for vehicle makers. It deals with components like differential assemblies, differential gears, conventional and micro-hybrid starter motors, EV traction motors (BLDC and PMSM) and motor control units to automotive firms across U.S., Europe, India and China.

Its business can can be categorised into two segments.

  • Drive line parts—differential assembly and gears.
  • Motors.

The company is expected to benefit from the growing shift towards electric powertrains, as it has been supplying differential gears to the global EV market since April 2016, and differential assemblies since 2018.

Revenue Breakup

Sona Comstar is a diversified technology company with presence across product lines, powertrains, geographies, vehicle segments and customers. It has nine manufacturing facilities—six in India and the rest in China, Mexico and the U.S. It majorly caters to the passenger car segment, and has of late increased focus on electric vehicles which constitutes 14% of its revenue—up from 1% in FY19.

It counts firms like Volvo Cars, Daimler, jaguar Land Rover, Mahindra & Mahindra, Volvo Eicher, Maruti Suzuki, among others, as clients.

As of FY21, it derived 68% of its revenue from the passenger vehicle market, with nearly 28% from differential gears, followed by micro/hybrid starter motors at 27%.

The company garners 36% of its revenue from North America, 26% from Europe, 25% in India and 7.6% from China.

Its top 10 customers contribute 79.6% of the revenue, with the top two accounting for 32.3%.

Objective

The company plans to use the proceeds of the IPO to repay or pre-pay the company’s identified borrowing fully, and for general corporate purposes. The company will use Rs 241 crore from the fresh issue to pare debt.

Among general corporate purposes, the net proceeds will be utilised towards capital expenditure, meeting working capital requirements, marketing and business development expenses, expansion of facilities and meeting exigencies and expenses incurred in the ordinary course of business.

Financials

For the year ended March 2021, the company reported revenue worth Rs 1,566 crore. While its Ebitda margin stood at 28.1%, profit was Rs 215 crore.

Competition

Sona Comstar faces competition from domestic and international firms, including Bharat Forge Ltd., CATL, American Axel, Auto Industries Ltd., Ramkrishna Forgings Ltd., Endurance Technologies Ltd.

Valuation

Risk Factors

  • Business dependent on the performance of the automotive sector globally, including in key markets such as U.S, Europe, India and China. Changes in conditions affecting these markets can adversely impact the business, results of operations and financial condition.
  • Business largely depends upon top ten customers and the loss of such customers or a significant reduction in purchases by them will have a significantly adverse impact on business.
  • High uncertainty of electric vehicle market penetration and technology change.
  • Pricing pressure from customers may affect gross margin, profitability and ability to increase prices.

Watch IPO Adda with Sona Comstar’s Sunjay Kapur and Vivek Vikram Singh:

Corrects earlier version that misstated the overall IPO size.

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