Brokerage firm Kotak Institutional Equities (Kotak Securities) has upgraded the stock of Sona BLW Precision Forgings to an 'add' from a 'reduce' due to the underperformance of the stock in the last few months.
However, the brokerage firm has cut its fair value (target price) to ₹525 from ₹550.
The stock is down 37% this year so far against a 2% drop in the benchmark Sensex.
The brokerage firm believes Sona BLW Precision Forgings is better positioned to navigate the current global economic crisis as the company derives 25% of its revenues from the global BEV segment, which reported 77% year-on-year (YoY) growth in the year-to-date (YTD) calendar year 2022 (CY2022) despite multiple headwinds.
Further, the ramp-up of new order wins in the traction motor category in EV (electric vehicles), 2W (two-wheelers) and 3W (three-wheelers) segments and resilient demand in domestic PV (passenger vehicles) and CV (commercial vehicles) segments augur well for the company. The recent correction in stock price provides a good entry point, said the brokerage firm.
"While we expect automotive sales recovery to remain muted in the EU due to the looming energy crisis and inflationary pressures, revenue mix of the EU region has declined to 13% in 1QFY23 from 26% in FY2022," Kotak said.
"China mix for the company has declined to 8% in Q1FY23 from 11% in FY2022, where automotive sales have stalled due to Covid-19-related lockdowns. On the other hand, the mix of Indian geography has improved to 32% in Q1FY23 from 22% in FY2022, where demand in PV and CV segments continues to be strong," said the brokerage firm.
Kotak has cut its FY2023-25 earnings per share (EPS) estimates by 4-8%, reflecting a (1) 3-6% cut in revenue growth assumptions of the company’s starter motor division and (2) 10-20 bps improvement in EBITDA margin due to the decline in commodity prices and favourable product mix.
"The stock price has corrected by more than 10% in the last three months, mainly due to concerns relating to the global slowdown, especially in the EU geography. However, we believe that the performance of the BEV segment will remain resilient and expect the company to benefit from it," Kotak said.
According to a MintGenie poll, an average of 15 analysts have a ‘hold’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.