Sona Comstar’s Rs 5,550-crore IPO opens; promoters to cut stake, should investors subscribe or not?

Sona BLW Precision Forgings’ (Sona Comstar) Rs 5,550 crore initial public offering opened for subscription today. The IPO is a mix of fresh issue of equity shares worth Rs 300 crore and the remaining is an offer for sale (OFS) by existing shareholders, including Blackstone’s affiliate Singapore VII Topco III Pte Ltd. Sona Comstar is one of the leading critical auto components manufacturers globally. The company is also a prominent player in the electric vehicle segment domestically. Promoter shareholding post issue will drop to 67%, while public shareholding will increase to 33%.

Investors can bid for the issue in a bid lot of 51 shares, in a price band of Rs 285 – 291 per share. This translates to a minimum investment of Rs 14,841. Of the total issue, 75% or has been reserved for qualified institutional buyers (QIB). Non-institutional investors (NII) are eligible to bid for 15% of the total issue while smaller retail investors can only bid for 10% of the entire IPO. Investors can place bids till June 16. Ahead of the issue, Sona Comstar has allocated 85,824,742 equity shares to anchor investors for a total of Rs 2,497 crore. Anchor investors include the Government of Singapore, SBI Mutual Fund, Nomura India Investment Fund, Fidelity Funds, Goldman Sachs, HDFC Mutual Fund, IIFL Mutual fund, among others.

Electric vehicle segment play

“We like SBPFL given its presence in the fast-growing global EV market, diversified portfolio across categories and robust financials,” said analysts at Motilal Oswal, valuing the firm at 74.1x FY21 P/E on a post-issue basis. “Though the valuation appears fully priced in, given its thrust in fast-evolving EV space both in India and globally, the market would like to give premium to such emerging growth story. Hence, we recommend Subscribe for Long Term,” they added. 

Global reach

Even analysts at ICICI Direct find the EV segment play aligned with Sona Comstar to be a key differentiator. ICICI Direct said that in FY21, the company obtained nearly 40% of revenues from ‘electrified’ platforms, including 14% from pure battery EVs. However, it is not just the EV play that is appealing when it comes to Sona Comstar. ICICI Direct analysts highlighted that the company has a global reach and diversified market presence another positive for investors to look at. The brokerage firm has a Subscribe only for long term rating.

High valuations 

But some are concerned about the high valuations. “At an upper price band of Rs 291, SONA BLW IPO is priced at 77.6x P/E and 12.8x P/BV. The valuations are very expensive for a company that has clocked no growth in the last 3 years! What’s more, the company is demanding an astronomical valuation of 10.8x Price to sales,” said Aditya Kondawar, Founder, COO, JST Investments. He added that Sona Comstar is an avoid for JST Investments since many listed ancillaries are available at 1x Price to sales or below.