X

Sona BLW Precision Forgings Limited Q4 FY24 Earnings Conference Call Insights

Key highlights from Sona BLW Precision Forgings Limited (SONACOMS) Q4 FY24 Earnings Concall

  • BEV Revenue
    • Revenue from battery electric vehicles continues to drive overall growth and increased to 32% share of total revenue.
    • BEV revenue grew by 32% year-over-year to reach INR 888 crores in FY24, more than double the growth rate of non-BEV revenue.
    • Company enabled 30 EV customers and 54 EV programs, diversified across customers, products, and geographies, up from 10 customers and 15 programs earlier.
    • Added 12 new EV programs and 4 new EV customers in FY24, further growing and diversifying the EV order book.
    • Challenges
    • Off-highway market weakness in India and U.S. impacted sales of differential gears and assemblies.
    • Uncertainty around EV subsidies in India affected traction motor sales.
    • Red Sea crisis and higher oil prices increased freight rates, impacting margins.
  • New Initiatives
    • Repurposing China plant to focus on traction motors and suspension motors instead of starter motors.
    • Pivoting NOVELIC from engineering services to product and semiconductor chip design business.
    • Increasing R&D spending by over 100 bps in FY25 to expedite existing projects and work on new.
  • New Orders/Products
    • Company added INR 51 billion worth of new orders during the year.
    • These new orders came from 39 new programs and 5 new customers.
    • Revenue growth primarily came from consumption of INR 40 billion from the order book.
    • Net addition to order book was INR 11 billion, taking total order book to INR 22,600 crores (about $2.7 billion).
    • EV contribution to the order book remains high at 79%.
    • Added steering bevel gearbox to technology roadmap for commercialization in commercial vehicles.
    • Introduced 8 new groundbreaking products this year across various domains like robotics, lightweight differentials, non-auto motors, radars.
    • Making progress on motors with partners like C-Motive (for industrial applications), Anadime (for bus motors).
    • Anadime motor prototypes validated, vehicle-level validation starting next quarter, showing promise.
    • However, facing commercial viability challenge with IRP magnet-less motor due to high costs.
  • Geographic/Product Mix
    • North America remains largest end market, contributing 40% of revenue.
    • Europe was fastest growing market, now contributing 26% of revenue.
    • India is second largest market with 28% revenue share.
    • Fastest growing segments were EV differential assemblies and EV traction motors.
    • Growth also seen in differential gears segment.
    • Share of non-automotive revenue declined from 12% to 10% due to off-highway demand weakness.
  • NOVELIC Acquisition
    • Completed acquisition of NOVELIC and launched third business vertical focused on sensors and software.
    • Radar technology for detecting presence and optimizing safety places company at forefront of E.P.I.C. evolution.
    • Diversifies portfolio, emphasizing commitment to intelligent, connected, personalized mobility solutions.
    • Seeing good traction on the product side after pivoting focus from engineering services.
    • Expect material progress on product revenues in the near future.
  • Financial Performance
    • Q4 FY24 saw highest ever revenue, EBITDA and net profit.
    • BEV revenue grew 34% to INR 273 crores, with 32% BEV revenue share.
    • FY24 revenue up 19% to INR 3,185 crores, more than double underlying vehicle sales growth.
    • BEV revenue grew 32% to INR 886 crores, BEV revenue share at 29%.
    • Adjusted EBITDA up 31% to INR 917 crores, margin expanded 270 bps.
    • Adjusted PAT up 34% to INR 535 crores led by higher operating profit.
    • Value addition to employee cost around 6x, dipped slightly due to higher ESOP expenses.
    • Net debt to EBITDA continues to be negative.
    • Working capital turnover improved to 4.6x.
    • ROCE and ROE improved to 31% and 28.5% respectively due to strong profit growth.
  • Chinese OEMs
    • Discussing potential impact of Chinese OEMs expanding globally and setting up factories outside China.
    • Company strategy is to get as many customers as possible, regardless of nationality or manufacturing location.
    • Aim to diversify customer base and not be overly reliant on any single customer.
    • Some geographies have different levels of receptivity to company’s products due to trade barriers.
  • EV Slowdown Concerns
    • No significant delays seen in order ramp-ups apart from EV two-wheeler space due to policy uncertainty.
    • Customers putting more pressure to improve new product development times, contrary to EV slowdown talk.
    • Company moving away from starter motors, indicating EV transition is real versus just talk.
    • Plug-in hybrids currently best for revenue, but see full EVs as the absolute future over hybrids.
  • R&D and Capex Spend
    • FY24 R&D spend around 2.4-2.5% of sales, aiming for 3.2-3.4% in FY25.
    • 70% R&D for existing products and adjacencies, 20% for new areas, 10% for moonshots.
    • Looking at semiconductor design, signal processing, software for radar/sensor data processing.
    • Willing to sacrifice some margin to reinvest in R&D for better future products.
    • Expected capex of INR 1,000-1,200 crores over next 2-3 years.
    • Investments being made to support new product launches and capacity expansion.
  • Localization Strategy
    • Setting up plant in Mexico to cater to North American EV customers and USMCA compliance requirements.
    • Localized supply but at competitive costs similar to Indian operations.
    • Enables accessing new customers and programs that may have been untapped otherwise.
  • Non-BEV Business Outlook
    • 70% revenues still from non-BEV products like hybrids, powertrain-agnostic offerings.
    • Off-highway segment very weak, especially in India and US, impacting differential gears/assemblies business.
    • India CV market also sluggish, only passenger vehicle segments doing relatively well across markets.
    • Overall underlying industry growth muted, so non-BEV business to rely more on market share gains.
  • EV Two-Wheeler Business
    • Competitive intensity in traction motors has eased after some non-serious players exited.
    • PLI certification provides competitive positioning advantage for company’s products.
    • Near-term pricing, subsidies uncertain but expected to stabilize over time.
    • Long-term growth expected as EV penetration in two-wheelers rises despite current volatility.
  • Program Updates
    • Some EV two-wheeler programs in India delayed due to subsidy uncertainty and pricing concerns.
    • However, delays compensated by faster ramp-up of other driveline programs beyond expected volumes.
    • Successfully recouped revenue loss from Q3 UAW strike as US operations normalized.
Related Post