While, the current trend may not be supportive according to a technical analyst Nilesh Jain, brokerage firm Jefferies picks Sona BLW relying on its strong fundamentals and growth potential.
The counter ended at Rs 420.80 on Wednesday and was down by Rs 10.60 or 2.46% from the Tuesday closing price.
Technical View by Nilesh Jain
Sell on Rise | CMP: Rs 421 | Target: Rs 370 | Downside: 12%
The trend in this counter is negative and investors could look to sell it on rise, Jain said. His view on the tock is over positional term. Any material upside in the stock will open only if the counter breaches over Rs 470 which is a strong support zone, Jain added.
Jain is Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking. He said that the stock could slip up to Rs 370.
At 43.6 and 45.4, momentum indicators RSI and MFI are in a medium range according to a data sourced from Trendlyne. A number below 30 suggests that the stock is trading in an oversold territory while it is overbought above 70.
Fundamental View
Jefferies on Sona BLW: Buy | Target: Rs 575/660 | Upside: 42-63%
Jefferies has initiated a ‘Buy’ rating on Sona BLW for a target of Rs 575, based on 40X FY25E PE, the brokerage firm said in a report.
“Its 38X/28X FY24E/FY25E PE appears rich, but we believe premium valuations will sustain given strong long-term growth outlook, and rising share of sales to EVs. The stock has traded at an average 62X PE since listing in July 2021,” the report said further.
The revenue estimates for FY23 stand at Rs 26.6 billion, up nearly 25% while PAT is seen at Rs 3.9 billion, up over 8% year-on-year. Despite Covid and global auto slowdown, Sona’s revenues and EPS grew at 15% and 20% CAGR over FY18-22, with average 28% EBITDA margin and 19% ROE, the Jefferies report said.
A large order book of Rs238bn (9x FY23E revenues) provides strong revenue visibility, it added. Acquisition of 54% stake in Serbian start-up Novelic adds a new business line of ADAS sensors, the report said .
Earnings
Valuations
While Sona is at a higher PE multiple compared to other component companies, it has stronger revenue and EBITDA growth, as well higher EBITDA margin and ROE, compared to most Indian and global peers, the report highlighted.
The current corrections and its underperformance against Nifty50 must be taken as a buying opportunity, the note said.
Jefferies puts Blackstone’s exit as a positive calling the latter’s presence as “a key overhang on the stock”. Realisation of PLI (Production Linked Incentive) benefits could drive 15-20% upside to its EPS estimates, the US headquartered financial services company said.
Negatives / Key Risks
— Blackstone has sold its nearly 21% stake in Sona BLW in March 2023.
— Key downside risks are global auto industry downturn and slow ramp up of new orders.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
