Over 60% return in 2 months! Should you buy Sona Comstar now?

Brokerage JM Financial initiated coverage on Sona BLW Precision Forgings (Sona Comstar) with a target price of Rs 570, indicating an upside of over 20% from the current market price of Rs 473. The company is one of India’s leading automotive technology companies. It supplies highly engineered automotive systems and components with diverse revenue streams such as differential gears (30%), differential assembly (18%), conventional and micro-hybrid starter motors (52%) along with upcoming avenues from BSG systems, EV traction motors and motor control units. Shares of the company have already advanced more than 60% against the issue price of Rs 291. The company was listed at Rs 302.40 on June 24, 2021. Sona Comstar supplies to automotive original equipment makers across the US, Europe, India and China for both electrified (20% revenue share currently) and non-electrified vehicles. “With its long-standing relationship with customers and focused R&D, Sona Comstar is ideally positioned to capitalise on the trend in global vehicle electrification, supported by its capability to combine motor and driveline capabilities to offer a compelling value proposition to the customers,” JM Financial said in a report. With the strong net order book of Rs 14,000 crore (with 57% from EVs), the brokerage expects revenue to post a 40% CAGR over FY21-24E with over 30% share from EVs. The EBITDA margin is expected to remain robust around 28% driven by operating leverage, increasing share of higher margin BEV differential assembly and the company’s conscious choice to avoid low-margin programs in motor business leading to EPS CAGR of 45%. “We initiate coverage on with a 'Buy' rating and target price of Rs 570 (based on DCF), implying a 20% upside. Key risks are dependence on the cyclical and fast-changing global automotive sector, delayed adoption of electric vehicles and inability to gain market share in new products,” JM Financial said.