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.