HDFC Securities initiates coverage on Sona BLW with 'Add'; sees upside on EV-led growth

HDFC Securities has initiated coverage on Sona BLW Precision Forgings with an 'Add' rating and a target price of Rs 845, implying an upside of 7.36% from Thursday's closing price of Rs 787.

The brokerage believes that the company's R&D capabilities, engineering expertise and differentiated product portfolio position it well to benefit from the shift towards electric mobility.

According to Hitesh Thakurani of HDFC Securities, Sona BLW's technology capabilities have enabled it to add new customers while increasing content per vehicle with existing ones. This, he said, has helped the company maintain EBITDA margins in the 23-25% range, while its focus on faster-growing segments is expected to drive operating leverage.


The brokerage also believes rising electric vehicle (EV) penetration will improve product realisations and strengthen the company's competitive positioning, particularly in India.

HDFC Securities has valued the stock at 43 times September 2028 EPS, or 2 standard deviations above its three-year average multiple, citing the company's medium- to long-term growth potential.

EV opportunity

HDFC Securities highlighted Sona BLW's strong presence in traction motors for India's electric two- and three-wheeler markets. Globally, the brokerage said demand for advanced differential gears and assemblies for EVs is supporting better realisations while creating higher entry barriers. The company is also developing high-voltage traction motors for passenger vehicles.

"Indication by Indian OEMs to expand the EV product portfolio as well as capacity augurs well for EV penetration in India. While revenues would get a boost, it is likely to cause margin dilution due to higher sale of traction motors in India," said the brokerage.

Product portfolio expansion

HDFC Securities further said Sona BLW continues to expand its product portfolio by leveraging customer relationships, R&D capabilities, acquisitions and strategic partnerships.

Products expected to gain traction over the medium term include suspension motors, sensors and radar systems, as well as offerings from its joint venture with Denso. The suspension motors could benefit from the company's technology advantage in improving ride quality, while the sensors and radar business is expected to gain from upcoming commercial vehicle ADAS regulations in India and Europe NCAP safety norms, according to the brokerage.

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Expanding customer base

HDFC Securities further said the company supplies components to seven of the world's top 10 passenger vehicle OEMs, three of the top 10 commercial vehicle OEMs, seven of the top 10 tractor OEMs and three of the top 10 EV OEMs.

The brokerage added that customer validation, coupled with the ongoing China+1 and Europe+1 sourcing trends driven by geopolitical risks and higher energy and labour costs, has helped Sona BLW add new customers and expand business with existing ones.

It also noted that while the company currently has a limited presence with Chinese OEMs, the relationship provides a hedge given the growing global footprint of Chinese EV manufacturers.

Potential headwinds

Despite its positive outlook, HDFC Securities flagged several risks, including global geopolitical uncertainties, additional US tariffs and China's restrictions on rare earth magnet exports.

The brokerage also highlighted key-person risk due to the company's relatively low promoter holding of 28% and the ongoing dispute within the promoter group, despite describing the company as professionally managed.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)