Sona Comstar IPO

IPO Details:

Price Band: 285-291

Cutoff Price: 291

About Company:

Company is one of India’s leading automotive technology companies, designing, manufacturing and supplying highly engineered, mission critical automotive systems and components such as differential assemblies, differential gears, conventional and micro-hybrid starter motors, BSG systems, EV traction motors (BLDC and PMSM) and motor control units to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments. According to the Ricardo Report, in calendar year 2020, company was among the top ten players globally in the differential bevel gear market on the basis of overall volumes of differential bevel gears supplied to PVs, CVs and tractors. Company is also amongst the top ten global starter motor suppliers based on the exposure to the PV segment and market share in calendar year 2020, according to the Ricardo Report. Company have been gaining global market share across products to reach a share of approximately 5.0% for differential bevel gears, 3.0% for starter motors and 8.7% for BEV differential assemblies, in FY 20, according to the Ricardo Report. Company have nine manufacturing and assembly facilities across India, China, Mexico and USA, of which six are located in India, from where we supply our products to six out of the top ten global PV OEMs, three out of the top ten global CV OEMs and seven out of the top eight global tractor OEMs by volume, according to the Ricardo Report.

Competitive Strengths:

1. One of the leading manufacturers and suppliers to global EV markets;

2. One of the leading global companies and gaining market share, diversified across key automotive geographies, products, vehicle segments and customers;

3. Strong research and development and technological capabilities in both hardware and software development;

4. Strong business development with customer centric approach

Strategies:

1. “Electrification”– Capturing market opportunity in the growing EV space;

2. Increasing market share globally;

3. Continue to focus on R&D to develop new and innovative systems and components.

Financial Performance:

Company revenue, net profit and EPS is positive. Revenue is increasing year on year but the net profit and EPS didn't show an increase in FY 21. There can be a multiple reason for this. With current EPS of ₹ 3.76 and cutoff price of ₹ 291, company PE is 79.

Objects of the Issue:

The Net Proceeds from the Issue are proposed to be utilised in the following manner:

1. Fresh Issue

2. Offer for Sale

Our view: Sona Comstar seems to be overvalued because of high PE. I am avoiding this IPO.

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