Blackstone backed Sona Comstar Will Hit The Primary Market On June 14. Should You Subscribe?

World’s leading Private-Equity firm Blackstone seems aggressive in listing its funded companies in India as the firm has decided to list its funded auto ancillary Sona Comstar after selling its stake in Mindsace REIT. The firm has lined up its housing finance lender ‘Aadhar Housing Finance’ which will be listed soon. Listing of auto ancillary at time when the Indian benchmark indices are scaling high signals that leading PE firm is looking to reap the benefits of healthy valuations.

The issue size is a mix of fresh issue of Rs. 300 crores and offer for sale of Rs. 5,250 crore by Singapore VII Topco III Pte Ltd. According to Draft Red Herring Prospectus, the issue comprises of Rs. 300 crores to be raised from issuance of fresh equity will be utilized for repayment of company’s debt amounting at Rs. 225 crores while the rest will be utilized general corporate purpose.

Sona Comstar IPO Details:

  • Issuer Company: Sona Comstar.
  • Industry:  Auto Ancillary
  • IPO Size: 5,550 cr.
  • Price Band: 285-291
  • Issue Open Date: 14 June, 21
  • Issue Close Date: 16 June, 21
  • Minimum Lot Size: 51 shares
  • Employee Discount: 15 Rs. Per share
  • Face Value: 10 Rs. Per share
  • Retail Allocation: 10%
  • Listing Exchange: NSE, BSE

About the Company

The journey of the company started in 1995 as Sona Okegawa Precision Forgings, which was a 75:25 joint venture between the Sona Group and Mitsubishi Materials and the pioneer of warm forged near net-shaped gears manufacturing technology. The Sona Group, after acquiring Thyssen Krupp’s forging business (which acquired BLW, the inventor of warm forging) and 25% stake of Mitsubishi, renamed the company to Sona BLW Precision Forgings, which became the largest manufacturer of forged gears. In 2019, Sona BLW acquired Comstar Automotive, a leading designer and manufacturer of starting and charging systems for automobiles, and created a new identity.

The whole journey of the company is filled with expansion of their manufacturing plants acquisitions of associated companies to achieve economies of scale. The company has manufacturing plants in Chennai, Pune, Gurgaon and Chakan. Globally, the leading auto ancillary has manufacturing plants in USA, China and Mexico. The company supplies its products across the countries such as India, US, Europe, and China.

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Industry Growth Drivers

Despite the resurgence in Covid-19 cases, global economy is seeing gradual signs of recovery in automobile industry. The rising income of the Indian population and shift to comfort comes first psychology will keep the demand of auto industry intact. The introduction of PLI (Production Linked Incentive) scheme which accounts for Rs. 751 billion in automobile & auto components and Advanced Chemistry Cell (ACC) battery is expected to push the expansion plans and achieve economies of scale in the industry. Rising infrastructure spending from government, increasing trend in CAGR of passenger vehicles, electric vehicle and commercials alongwith manufacturing incentives from administration is expected keep the rising trend in automobile industry.

Financials

On the financial front, the company had reported an inconsistency in the growth prospects of revenues. The balance sheet of the firm reports non-current financial borrowing around 230 crores, which is expected to pay off post listing. The company has managed to pass on the increased prices of steel in driveline segment and copper prices in motor segment while rise in prices of steel and aluminum in similar segment are absorbed. EBITDA margins of the company stands at 28% much higher than its listed peers. Return of Equity stands at 35%. The company has extended its operations to Battery Electric Vehicle (BEV) segment for which continuous R&D is conducting by the company. Considering the upper price band and FY20 EPS, the company is demanding a P/E multiple of 75.6x, lower than the Industry P/E of 140.

Book Runners

Kotak Mahindra Capital Company, Credit Suisse Securities, JP Morgan India, JM Financial, and Nomura Financial Advisory and Securities are the book running lead managers to the issue.

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