Sona Comstar: Automotive Tech Company

Sona BLW Precision Forgings Limited operates as an automotive systems and components manufacturer.

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A) About

Sona BLW Precision Forgings Limited (SBPF)  (Sona Comstar) is one of India’s leading automotive technology companies. The Company is engaged in designing, manufacturing and supplying highly engineered, mission critical automotive systems and components such as differential assemblies, differential gears, conventional and micro-hybrid starter motors, BSG systems, EV traction motors ( BLDC-Brushless Direct Current & PMSM-Permanent Magnet Synchronous Motors) and motor control units to automotive OEMs across US, Europe, India and China, for both electrified and nonelectrified powertrain segments.

Moreover, in calendar year 2020, SBPF was among the top 10 players globally in the differential bevel gear market.

B) Journey Since Inception

The journey of the company started in 1995. Its name was Sona Okegawa Precision Forgings, which was a 75:25 joint venture between the Sona Group and Mitsubishi Materials.

Further, the Sona Group, acquired Thyssen Krupp’s forging business (which acquired BLW, the inventor of warm forging) and 25% stake of Mitsubishi. Further, the name of the company became to Sona BLW Precision Forgings, and it became the largest manufacturer of forged gears.

Then, in 2019, Sona BLW acquired completely “Comstar Automotive”, a leading designer and manufacturer of starting and charging systems for automobiles, and created a new identity.

Additionally, in the same year i.e 2019 Sona BLW Precision Forgings adopted “Sona Comstar” as its brand name.

Subsequently, in the year 2020 the Company achieved milestone of production of approximately 250 million gears.

C) Executive Management of Sona BLW Precision Forgings

i) Sunjay Kapur – Chairman

Mr Sunjay Kapur is the Chairman and Non-Executive Director of SBPF. He holds a bachelor’s degree in science (business studies) from the University of Buckingham.

Further, Mr Kapur has over 21 years of experience in the automotive industry.

Prior to his appointment as the Chairman and Non-Executive Director of Sona BLW, he served as the managing director on the Board of Sona BLW Precision Forgings . Also, he served as director on the board of directors of various companies. Also, he was the MD of Sona Koyo Steering Systems Limited (now JTKET India Limited).

He holds membership in various autonomous bodies, such as (ACMA) Automotive Component Manufacturers Association of India. Further, he has been appointed as the Vice President (for 2021-22) if ACMA. He is also acting as the chairman of the Haryana State Council. Also, he is the co-chairman of the Manufacturing Council of the Confederation of Indian Industry. He has been an former chairman of the Entrepreneurs’ Organization.

Mr Kapur has been appointed as a member of the board of governors of the Doon School, Dehradun.

During FY21 Mr Kapur received remuneration of Rs 2.4 Crore which is 0.15% of the Net Sales and 1.12% of the Net Profit for FY21.

ii) Vivek Vikram Singh – MD & Group CEO

Vivek Vikram Singh is the Managing Director and Group Chief Executive Officer of Sona BLW Precision Forgings .

He holds a bachelor’s degree in technology (computer science and engineering) from HBTI, Kanpur. Moreover, he holds a post graduate diploma in management from the IIM, Ahmedabad.

Further, Mr Vikram has over 15 years of experience, including 6 years of experience in the automotive industry.

Further, his responsibilities include overseeing the production of auto components, systems platform in electric vehicles and hybrids, capital allocation decisions etc.

Mr Singh was recognised as one of the India’s 40 under forty hottest business leaders by the Economic Times in 2018. He joined Sona BLW Precision Forgings on July 1, 2016. Then, he was appointed as the Managing Director and Group Chief Executive Officer on the Board of the Company with effect from July 5, 2019.

During FY21 Mr Singh received remuneration of Rs 2.07 Crore which is 0.13% of the Net Sales and 0.96% of the Net Profit for FY21.

D) Shareholding Pattern Sona BLW Precision Forgings

Sona BLW Precision Forgings Ltd shareholding
Sona BLW Precision Forgings Ltd more than 1%

E) Products offered by Sona BLW Precision Forgings

Sona BLW Precision Forgings has ability to deliver for OEMs across the globe. It does the same in US, Europe, India and China, across both electrified and non-electrified powertrain segments. The Company is engaged in the production of the following:

The products offered by the Company find application across all vehicle categories including:

  • Conventional passenger vehicles
  • Commercial vehicles
  • Off-highway vehicles
  • Electric cars
  • E (Electric) light commercial vehicles and
  • Electric two and three-wheelers

F) Manufacturing Capabilities

Manufacturing facilities of Sona BLW Precision Forgings are spread around the globe.

Sona BLW Precision Forgings Ltd manufacturing capabilities

Sona BLW Precision Forgings has 9 manufacturing and assembly facilities. Indeed, out of these nine, 6 are located in India and one each in China, Mexico and USA. Further, the Company has 8 warehouses across India, USA, Germany and Belgium.

In fact, Company’s capabilities in precision-forging technology has enabled it to become one of the top 10 players globally in the differential bevel gear market in calendar year 2020.

Also, Sona BLW Precision Forgings is the largest manufacturer of differential gears for PV, CV and tractor OEMs in India

Map presenting the locations of:

  • Manufacturing and assembly plants
  • R&D centres,
  • Warehouses
  • Tool and die shop and
  • sales office

as on 31st March 2021:

Sona BLW Precision Forgings Ltd locations

G) Market Share of Sona BLW Precision Forgings

i) India

Sona BLW Presision Forgings is largest manufacturer of differential gears for passenger vehicles (PV), commercial vehicles (CV) and tractor OEMs in India. Further, here is the Market share of the Company (CY20) of:

  • 55-60% in Passenger Vehicles
  • 75-85% in Tractor OEMs
  • 80-90% in Commercial Vehicles

ii) Global

Company’s global market share for CY20 is as:

  • 8.7% global market share in Battery Electric Vehicles (BEV) differential assemblies
  • 5% global market share in Differential Gears
  • 3% global market share in Starter Motors

Market Share of other Global Players in Production of BEV at Global Level (CY20)

  • Tesla: ~21% of the share
  • Renault Nissan: ~12% of the share
  • Volkswagen: ~10% of the share

Consumers

Sona BLW Presision Forgings serve 6 of the world’s top 10 car makers; 3 of the top 10 truck makers and 8 of the top 10 tractor makers.

The number of customers exceeding 10% of total revenue is 3.

The company has strong relationships with major original equipment manufacturers such as Maruti Suzuki India Limited, Tata Motors Limited and Mahindra & Mahindra Limited

H) Revenue Segmentation – Sona BLW Precision Forgings

i) Geographical Segmentation of Revenue of Sona BLW Precision Forgings

sona BLW Precision Forgings geographical revenue mix

Sona BLW Precision Forgings is a global supplier. Around 75% of its revenues is generated from international geographies.

Further, ~25% revenue is generated from India.

For FY21 Key regions for the Company are North America (~36% revenue), Europe (~26%), India (25%) and China (8%).

It is also one of the two largest exporters of starter motors from India.

ii) Revenue mix by product

Sona BLW Precision Forgings Ltd product revenue mix

In product segment of Sona BLW Precision Forgings:-

  • 28% of FY21 revenues came from Differential gears
  • 17% came from Differential Assembly,
  • 27% from Micro Hybrid Starter Motors
  • and, 24% from Conventional Starter Motors

iii) Revenue mix by Powertrain Sona BLW Precision Forgings

Sona BLW Precision Forgings Ltd segment powertrain

In terms of powertrain, Battery EV segment of Sona BLW Precision Forgings contributed 14% of FY21 revenue, micro hybrid/Hybrids contributed 27%, Power source neutral contributed 34% and ICE contributed 25% for FY21.

iv) Sona BLW Precision Forgings Revenue mix, by Vehicle Segment

Sona BLW Precision Forgings Ltd vehicle segment revenue

Further, in terms of vehicle segments of Sona BLW Precision Forgings , Passenger Vehicles (PV) contributed 69% of FY21 sales, Off highway vehicles contributed 17% and Commercial Vehicle (CV) contributed 14% for FY21.

I) Sona BLW Precision Forgings Ltd Operational Parameters

i) Raw Material as % of Net Sales

Raw Material includes special steel alloy bars, iron castings, steel blanks and bolts for manufacturing differential gears and differential assemblies and steel forgings, copper enamelled wires, machined aluminium pressure die castings, bearings, magnets, plastic moulded components and other proprietary parts for manufacturing starter motors and BLDC motors.

Sona BLW Precision Forgings Ltd Raw material

Raw Material Cost accounted for ~45% of Net Sales for Fiscals 2021. Moreover, Material cost can vary depending upon the product mix of sales.

ii) Fixed Assets as % of Total Assets

Sona BLW Precision Forgings Ltd fixed assets

J) Financial Parameters

Sona BLW Precision Forgings Ltd financial parameters

The financials of the Company reflect the impact of Comstar acquisition for FY21.

Indeed, Sona Comstar’s financials have remained largely stable over past 10 years. Even though, PAT margin declined over FY 2020-21, but PAT grew at CAGR of ~22% over the last 10 years.

The Company’s total debt stood at Rs 366.3 Crore. Cash and cash equivalents amounted to INR 24.9 Crore in FY21

In fact, the Company increased its borrowings in FY21 in order to mainly finance capital expenditure for expansion of the capacity at Manesar plant.

K) Management outlook and Concall highlights

As part of a strategy, Sona BLW Precision Forgings intends to penetrate in European markets for supplying differential assemblies and gears where it has limited scope for its driveline products.

It also plans to expand its presence in China for supplying micro-hybrid starter motors for PV and LCVs as well as its 48V BSG systems for hybrid PVs due to the benefits from China’s growing position as a leading market for EV OEMs.

Presently, it is the largest manufacturer of differential gears (market share) for PV (55- 60%), CV (80-90%) and tractor (75-85%) OEMs in India.

During FY21 the Company deployed INR 2,18.9 Crore in Capex.

Further, the estimated capex outflows FY22 is 4.5 billion.

For Q2 FY22 the utilization for gears in the quarter was at 85%, the assemblies at 100% and starter motors at 55-60%. Moreover, the company has existing capacity of 150,000 units/annum for BLDC (Brushless Direct Current) and PMSM (Permanent Magnet Synchronous Motors), currently catering to two customers in 2-wheelers space and one under 3-wheeler space. The company plans on taking the overall capacity to 400,000 nits/annum by Q1FY23.

L) Opportunities

i) Demand for Electric Vehicles

Demand for electric two-wheelers is expected to grow at a CAGR of 72% to 74% between Fiscals 2021 to 2026 (according to the CRISIL Report) and the electric three-wheeler segment is expected to grow at a CAGR of approximately 46% between calendar years 2021 to 2025 to reach 400,000 units in sales (according to the Ricardo Report). Further, the Company supply e-axles, BLDC motors and motor control units for use in the electric two-wheeler and three-wheeler segments.

Also, according to the Ricardo Report, 2030 targets for India indicate that 70% of all commercial PV, 30% of private PV, 40% of buses, 80% of two-wheeler and 80% of three-wheeler sales would be electric.

According to the CRISIL Report, Indian CV and PV sales are expected to increase 9% to 10% CAGR and 12% to 14% CAGR, respectively, over Fiscals 2021 to 2026, with growth of 38% and 23%, respectively in Fiscal 2022. This will be positive for Company’s differential gears business as management’s estimated market share of the Indian CV and PV markets is approximately 80% to 90% and 55% to 60%, respectively, according to the CRISIL Report.

Further, the mix of SUVs, CUVs, multi axle trucks and high powered EVs in the Indian and global PV and CV market is expected to increase according to the CRISIL Report and the Ricardo Report, leading to higher usage of differential gears per vehicle as these vehicles are AWD/4WD/multi-axle. This trend is expected to be positive for revenue growth of its differential gear business.

ii) Increasing market share globally

Sona BLW Precision Forgings has increased its global market share of differential gears and starter motors to 5.0% and 3.0%, respectively in CY 2020 from 4.5% and 2.5%, respectively in CY 2019. The global market share of the Company in BEV differential assemblies was 8.7% in CY 2020. The Management intends to penetrate the European market for supplying differential assemblies and differential gears, where currently it has limited market share for driveline products.

The company also plans to expand its presence in China for supply of Company’s micro-hybrid starter motors for PVs and LCVs as well as its 48V BSG systems for hybrid PVs. The company had set-up an assembly plant in China in 2015 and Mexico in 2017, with an aim to capture higher market share in the Chinese and North American markets.

M) Strengths

i) Well diversified geographically and in Vehicle Segment

Sona BLW Precision Forgings has a fairly diversified customer base across all vehicle segments, of vehicle segments of Sona BLW Precision Forgings , Passenger Vehicles (PV) contributed 69% of FY21 sales, Off highway vehicles contributed 17% and Commercial Vehicle (CV) contributed 14% for FY21.

Further, for FY21 Key regions for the Company are North America (contributed ~36% revenue), Europe (contributed ~26%), India (contributed 25%) and China (contributed 8%).

ii) Diversification across powertrain

The company’s product offerings span across all type of conventional and electrified powertrain. This makes it one of the few automotive technology manufacturers that is ready to witness growth due to changing industry trends.

In terms of powertrain, Battery EV segment of Sona BLW Precision Forgings contributed 14% of FY21 revenue, micro hybrid/Hybrids contributed 27%, Power source neutral contributed 34% and ICE contributed 25% for FY21.

iii) Government initiatives

The Government of India has been pushing for electrification of vehicles aggressively and announced Faster Adoption and Manufacturing of Electric Vehicles in India Phase-II (FAME-II) policy with significant allocation of resources in March 2019 to push for electrification of vehicles including establishing charging stations and providing subsidy on acquisition of EVs.

Revenue from EVs already constitutes 13.8% of Company’s Revenue from Sale of Goods.

N) Threat

i) Dependence on global markets

The business of Sona BLW Precision Forgings is dependent on the performance of the automotive sector globally, including key markets such as US, Europe, India and China. Further more, any adverse changes in economic and political conditions affecting these markets can adversely impact business, results of operations and financial conditions.

Drop us your query at – info@pawealth.in or Visit pawealth.in

References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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