Sona BLW Precision Forgings Ltd:Annual Report 2023-24 Analysis

Sona BLW Precision Forgings Ltd: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Established in 1995 as Sona Okegawa Precision Forgings Limited (a joint venture between Sona Group and Mitsubishi Materials Techno Corporation), the company later rebranded as Sona BLW Precision Forgings Ltd.

Headquarters Location and Global Presence: The company’s headquarters are located in Gurugram, Haryana, India. Sona BLW has a global presence, with manufacturing and R&D facilities in India, China, Germany, and the USA.

Company Vision and Mission: Sona BLW’s vision is to be a leading global provider of innovative and sustainable driveline solutions for electric and conventional vehicles. Their mission focuses on delivering high-quality, cost-effective solutions through technological innovation and operational excellence.

Key Milestones in Their Growth Journey:

• 1995: Established as Sona Okegawa Precision Forgings Limited.
• 2019: Blackstone acquired a majority stake in the company.
• 2021: Sona BLW Precision Forgings Ltd. went public with an IPO.
• Ongoing: Strategic acquisitions and expansions to strengthen global presence and technological capabilities.

Stock Exchange Listing Details and Market Capitalization: Listed on both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) under the symbol “SONACOMS”. Market capitalization varies and should be verified through current financial resources.

Recent Financial Performance Highlights: Sona BLW has demonstrated consistent revenue growth driven by the increasing adoption of electric vehicles and their strong product portfolio. Profitability metrics, including EBITDA margins and net profit, are generally favorable. Check recent financial reports for the most up-to-date figures.

Management Team and Leadership Structure: The company has a well-defined leadership structure with a board of directors and a management team led by the CEO. Key leadership figures are often featured in company announcements and investor presentations.

Notable Awards or Recognitions: Sona BLW has received various awards and recognitions for its technological innovations, manufacturing excellence, and sustainability initiatives. Specific awards vary and should be confirmed through the company’s website or press releases.

Their Products #

Complete Product Portfolio with Categories: Sona BLW specializes in designing, manufacturing, and supplying highly engineered automotive components and systems. Key product categories include:

• Differential Assemblies: Complete differential units for various vehicle applications.
• Gears: Precision-forged bevel gears, synchronizer gears, and other transmission gears.
• BSG Systems: Starter generator systems for hybrid vehicles.
• Electric Driveline Components: Traction motors, motor control units, and other components for electric vehicles.
• Conventional Driveline Components: Differentiates, Axle shafts, BSG Systems

Flagship or Signature Product Lines: Electric driveline components are increasingly becoming a flagship product line, particularly traction motors and motor control units for electric vehicles.

Key Technological Innovations or Patents: Sona BLW holds numerous patents related to its forging processes, gear designs, and electric driveline technologies.

Manufacturing Facilities and Production Capacity: The company operates multiple manufacturing facilities across India, China, Germany, and the USA. Production capacity varies by product line and is strategically managed to meet market demand.

Quality Certifications and Standards: Sona BLW maintains high-quality standards and holds certifications such as IATF 16949, ISO 14001, and ISO 45001.

Unique Selling Propositions or Technological Advantages:

• Engineering Expertise: Strong capabilities in designing and developing complex driveline solutions.
• Forging Technology: Advanced forging processes that enable the production of high-strength, lightweight components.
• Electrification Focus: Dedicated focus on developing innovative electric driveline technologies.
• Global Footprint: Strategic locations that provide proximity to key customers and markets.

Recent Product Launches or R&D Initiatives: Sona BLW consistently invests in R&D to develop new products and improve existing ones. Recent initiatives have focused on enhancing the performance and efficiency of electric driveline components.

Primary Customers #

Target Industries and Sectors: Primarily serves the automotive industry, with a focus on both electric vehicles (EVs) and conventional vehicles (ICE).

Geographic Markets (Domestic vs. International): Sona BLW has a strong presence in both domestic and international markets. They cater to customers in India, North America, Europe, and Asia.

Major Client Segments:

• Passenger Vehicles (PVs): Supplying components for cars and SUVs.
• Commercial Vehicles (CVs): Providing solutions for trucks and buses.
• Electric Vehicles (EVs): A rapidly growing segment with a focus on electric driveline components.
• Off-Highway Vehicles: Tractors, construction equipment

Distribution Network and Sales Channels: Sona BLW utilizes a direct sales approach to serve its major OEM customers. They also leverage partnerships and collaborations to expand their reach.

Major Competitors #

Direct Competitors in India and Globally: Key competitors include established automotive component manufacturers and emerging players in the electric driveline space.

Competitive Advantages and Disadvantages:

• Advantages: Strong engineering capabilities, forging technology, electrification focus, global footprint.
• Disadvantages: Reliance on the automotive industry, potential impact of technological disruptions.

How They Differentiate from Competitors: Sona BLW differentiates itself through its technological innovation, forging expertise, focus on electric drivelines, and global presence.

Industry Challenges and Opportunities: The automotive industry is facing challenges such as technological disruptions, changing consumer preferences, and increasing regulatory pressures. Sona BLW is well-positioned to capitalize on opportunities related to the growth of electric vehicles and the demand for lightweight, high-performance components.

Market Positioning Strategy: Sona BLW aims to be a leading provider of innovative and sustainable driveline solutions for electric and conventional vehicles.

Future Outlook #

Expansion Plans or Growth Strategy: Sona BLW plans to expand its global footprint, strengthen its technological capabilities, and increase its focus on electric driveline components.

Upcoming Products or Innovations: The company is actively working on developing new electric driveline technologies, including advanced traction motors, motor control units, and integrated driveline systems.

Sustainability Initiatives or ESG Commitments: Sona BLW is committed to sustainability and has implemented various initiatives to reduce its environmental impact. These include energy efficiency measures, waste reduction programs, and the use of renewable energy sources.

Industry Trends Affecting Their Business:

• Electrification of Vehicles: A major trend driving demand for electric driveline components.
• Lightweighting: The need for lightweight components to improve fuel efficiency and vehicle performance.
• Autonomous Driving: The increasing adoption of autonomous driving technologies.

Long-Term Vision and Strategic Goals: Sona BLW’s long-term vision is to be a leading global provider of innovative and sustainable driveline solutions for electric and conventional vehicles. Their strategic goals include expanding their global presence, strengthening their technological capabilities, and increasing their focus on electric driveline components.

3-Year Trend Analysis of Key Financial Metrics #

• Revenue: Doubled from INR 15,663 million (FY2021) to INR 31,848 million (FY2024).
• EBITDA: Doubled, from INR 4,410 million (FY2021) to INR 9,021 million (FY2024).
• Net Profit: Increased 2.4x, from INR 2,152 million (FY2021) to INR 5,173 million (FY2024).
• Net Order Book: Increased, from INR 140,000 million (FY2021) to INR 226,000 million (FY2024).
• BEV Revenue: Increased 4.3x in absolute terms. Increased from 14% Revenue share (FY2021) to 29% (FY2024).
• ROCE AND ROE further improved to 31% and 28.5% respectively.
• Free Cash Flow From Operations: Witnessed 88% Growth.

Business Segment Performance #

Powertrain Mix (FY2024) #

Power source neutral products contributed the most (37%), followed by BEV (29%), micro-hybrid/hybrid (24%), and ICE dependent (10%). ICE-dependent product share decreased from 25% (FY2021) to 10% (FY2024).

Geographic Mix (FY2024) #

North America was the largest market (40%), followed by India (28%), Europe (26%), Asia (5%), and the rest of the world (1%).

Product Mix (FY2024) #

Differential gears were the largest contributor (32%), followed by differential assemblies (24%), micro/plug-in hybrid starter motors (24%), conventional starter motors (10%), traction motors & controllers (5%), and remaining revenue from other drivetrain parts, sensors and software, and others.

Market Segment Mix: FY 2024 #

Passenger vehicles accounted for (70%) of revenue, followed by, commercial vehicles (14%), non-automotive (10%), electric 2/3 wheelers (5%).

Global Market Share #

Differential gears increased from 7.2% (CY2022) to 8.1% (CY2023). Starter motors increased from 4.0% to 4.2%.

BEV Segment #

BEV revenue grew by 32% to over INR 9.0 billion in FY2024. BEV Revenue share witnessed a growth of 32% and its share of total revenue increased to 29%

Major Strategic Initiatives and Their Progress #

Electrification #

Added 12 new EV programs and 4 new EV customers in FY2024. EV programs now total 54, and EV customers total 30. 79% of the net order book is from EV programs.

Technology Roadmap Expansion #

Added ‘Sensors and Software’ as a third vertical through the acquisition of NOVELIC. Introduced eight new future products, including an integrated motor controller. Signed a technology licensing agreement with Equipmake Plc.

New Product #

Spool Gears & Epicyclic Geartrain were developed as a solution for 3 or 4 motor drive train architectures.

Risk Landscape Changes #

• Geopolitical Uncertainty: Increased geopolitical uncertainty in regions where the Company operates.
• Raw Material Volatility: Commodity price volatility and supply chain risks remain.
• Regulatory Changes: Changes in environmental and automotive regulations, particularly the acceleration of the shift away from ICE-dependent vehicles.
• COVID-19 Pandemic (and Similar Events): Potential for future disruptions from pandemics or similar public health threats.

ESG Initiatives and Metrics #

Environmental #

• Added 959.5 KwP of rooftop solar capacity.
• Committed to establishing 18.85 MwP of solar power through captive/group captive route in Haryana and Maharashtra.
• Reduced specific energy consumption by 4%
• Reduced water intensity by 13% in FY2024.
• Emission intensity was maintained the same level to previous year
• Reduced waste to landfills by 8% by 2025 and 10% by 2030 over the 2022 baseline.

Social #

• Increased female workforce from 3% to 6% in FY2024.
• CSR programs focused on environmental sustainability, women’s empowerment, skill development, education, and livelihood.
• Received the ‘Great Place to Work’ certification with a higher rating.
• CSR programs assessed in the ‘Platinum’ category by an independent agency.

Governance #

• Received the ‘Golden Peacock Award’ for governance.
• Rated ‘Low Risk’ by Sustainalytics Ratings.
• Published its second sustanability report.

Management Outlook #

• Global macro-economic outlook for FY2025 appears to be mixed
• Expects continued growth driven by order book conversion to revenue, rather than overall automotive market growth.
• Aims to capitalize on opportunities in electric, personalized, intelligent, and connected (E.P.I.C.) mobility.
• Plans to increase R&D expenditure by at least 1% of revenue compared to the previous year.

Detailed Analysis #

Financial Position Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis (Consolidated) #

(INR in Million)

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets: Increased by 39.67%, primarily due to increases in Right of use assets, Property, plant and equipment, Capital work-in-progress, Goodwill and Other Intangible Assets, and Investments.
• Goodwill:,Increased by 99% due to acquisition of Novelic d.o.o.
• Other Intangible Assets: Increased significantly, due to the acquisition of NOVELIC.
• Investments(Non-Current) Increased by 123.34%, due to the Group’s increased investment activities.
• Other non-current assets:. Increased by 139.34%, due to an increase in Other Assets.
• Total Liabilities: Increased by 38.35%, driven by increase in both non-current and current liabilities.
• Non-Current Borrowings: Decreased by 39.86%
• Lease liabilities:: Increased by 156.64%, due to Increase in the lease liability.
• Other financial liabilities:: Increased by 29,979.89%, due to amount payable to the founders of Novelic d.o.o.
• Other Equity: Increased by 21.06%, driven by retained earnings and employee stock option reserves.
• Non-Controlling Interest: Reflects the 46% stake in NOVELIC not owned by Sona BLW.

Working Capital Trends #

• Net Working Capital decreased slightly, due to a greater proportional rise in current liabilities relative to current assets.

Asset Quality Metrics #

• Goodwill to Total Assets: 8.84% (2024), 5.75% (2023). The increase shows greater reliance on acquisitions for growth, presenting integration risk.
• Intangible Assets to Total Assets: 18.53% (2024), 15.31% (2023). High ratio, combined with Goodwill, points to significant intangible value on the balance sheet, requiring careful impairment assessment.
• **Property, plant and equipment to total assets:**23.59% (2024), 26.83% (2023).
• Right-of-use assets to total assets:6.20% (2024), 4.69% (2023).
• Inventories to total current assets: 24.69% (2024), 24.84% (2023).

Debt Structure and Maturity Profile #

• A significant portion of the debt is now current (primarily borrowings), indicating higher refinancing risk in the short term.
• Lease liabilities have a longer-term profile, as indicated in the provided detailed breakdown.
• The Group has a mix of secured and unsecured debt, with secured debt tied to specific assets.

Off-Balance Sheet Items #

• Contingent Liabilities: INR 285.91 million (2024), INR 388.12 million (2023) primarily related to tax disputes. These represent potential obligations.
• Capital Commitments: INR 1,597.56 million (2024) related to contracts for the acquisition of property, plant, and equipment.

Operating Performance #

Revenue Breakdown #

• By Powertrain (FY24): Power Source Neutral: 37%, Battery EV (BEV): 29% (32% YoY growth), Micro/Plug-in Hybrid: 24%, ICE Dependent: 10%. ICE-dependent product revenue share decreased from 25% (FY21) to 10% (FY24). BEV revenue grew from INR 2,057 million (FY21) to INR 8,859 million (FY24), growth 4.3x.
• By Geography (FY24): North America: 40%, India: 28%, Europe: 26%, Asia: 5%, Rest of the World: 1%.
• By Product (FY24): Differential Gears: 32%, Differential Assemblies: 24%, Micro/Plug-in Hybrid Starter Motors: 24%, Conventional Starter Motors: 10%, Traction Motors & Controllers: 5%, Remaining: Other Drivetrain Parts, Sensors, Software, and Others.
• By Market Segment (FY24): Passenger Vehicles: 70%, Commercial Vehicles: 14%, Non-Automotive: 10%, Electric Two/Three-Wheelers: 5%, Semiconductors & Embedded Software: 1%.
• Total Revenue Growth FY24 vs FY23: is 19% (from INR 26,756 million to INR 31,848 million).
• Consolidated Revenue grew 2x from FY21 to FY24. Consolidated PAT is 2.4 times more in FY24 compare to FY21

Cost Structure Analysis #

• Material Cost: 43% of total income (FY24), down from 45% (FY23).
• Employee Cost: 8% of total income (FY24), up from 7% (FY23) due to increase in headcount, new ESOP scheme, increments, and NOVELIC acquisition.
• Finance Cost: 1% of total income in both FY24 and FY23, increased 53% year-over-year.
• Depreciation and Amortization: 7% of total income in both FY24 and FY23, increased 24% year-over-year.
• Other Expenses: 21% of total income (FY24), down from 22% (FY23).

Margin Analysis #

• EBITDA Margin: 28.3% (FY24), up from 26.0% (FY23), driven by improved product mix, operational efficiencies, and benign input costs. The company’s average EBITDA for last 25 years is at 26%.
• PAT Margin: 16.3% (FY24), up from 14.8% (FY23).

Non-Recurring Items #

• Exceptional items related to the NOVELIC acquisition: INR 87 million (FY24) and INR 34 million (FY23).

GAAP vs. Non-GAAP Reconciliation #

• Adjusted PAT (excluding ESOP cost and NOVELIC acquisition expenses): INR 5,348 million (FY24), growth of 34% YoY. No reconciliation presented.

EPS Analysis #

• Basic EPS: INR 8.83 (FY24), up from INR 6.76 (FY23).
• Diluted EPS: INR 8.83 (FY24), up from INR 6.75 (FY23).

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components (Consolidated) #

• OCF: Increased to INR 6,927.51 million in FY 2023-24 from INR 5,332.89 million in FY 2022-23.
• ICF: Net cash used in investing activities was INR 4,525.09 million in FY 2023-24, compared to INR 5,629.05 million in FY 2022-23, included sale/(Purchase) of current investments, fixed desposits.

Working Capital Management Efficiency (Consolidated) #

• Working Capital Turnover: Increased to 4.6 times in FY 2023-24 from 4.2 in FY 2022-23.
• Inventory, as of March 31, 2024, had increased to 3,474.91 million from 3,229.41 million.
• Trade Receivables, as of March 31,2024, had increased to 6,482.63 million from 6,088.52 million.
• Trade Payables, as of March 31,2024, have increased to 2,981.05 million from 2,489.34.

Dividend and Share Buyback Trends (Consolidated) #

• Dividends:
  • Total Dividend per share for FY24 is INR 3.06.(Final dividend recommended on 30 th April 2024, is proposed at INR 1.53 per share, Subject to approval of share holders.)
  • An interim dividend of INR 1.53 per share was declared and paid in FY 2023-24.
  • Total dividend payout for FY 2023-24 was INR 1,792.94 million, compared to INR 1,199.27 million in FY 2022-23.
• Share Buybacks: No share buybacks were mentioned in the provided data for FY 2023-24.

Debt Service Coverage (Consolidated) #

• Debt Service Coverage Ratio (DSCR) decreased to 15.49 times in FY 2023-24, from 21.05 times in FY 2022-23, attributed to increase in short term borrowings.

Liquidity Position and Cash Conversion Cycle (Consolidated) #

• Liquidity:
  • Current Ratio: 2.1 as of March 31, 2024, down from 2.4 in March 2023.
  • Cash and Cash Equivalents: INR 910.05 million as of March 31, 2024, increased from INR 441.08 million in the previous year.
  • Other Bank Balances (primarily fixed deposits): INR 1,831.59 million as of March 31, 2024.

Financial Analysis of Sona BLW Precision Forgings Limited #

Profitability Ratios (3-Year Trends) #

*Using figures from the “Year in Review” section as those offer the most direct and comparable numbers, from which the figures are calculated.

Analysis: #

• ROE has consistently improved over the three-year period, indicating increasing efficiency in utilizing shareholder investments.
• EBITDA and PAT Margins have generally followed an upwards trend.

Liquidity Metrics #

*The information needed to assess the quick ratio(current assets less inventories, prepaid expense and advances/ current liabilities) is not fully presented in a way to be properly assesed.

Analysis: #

• The current ratio is above 1, indicating the company has sufficient current assets to cover its current liabilities, though it has decreased from 2023 to 2024.

Efficiency Ratios #

*These are from the Key Financial Ratios, but applied to revenue from operations instead of “net sales”.

Analysis: #

• Inventory Turnover has increased, signaling a more e/fficient sales process.
• Receivables turnover slightly increased, indicating slightly improved efficiency in collecting receivables.

Leverage Metrics #

*Although the data provided net debt.

Analysis: #

• The negative Debt/Equity ratio shows that the Group has more cash and equivalents than debt.

Working Capital Ratios #

Analysis: #

Working capital turnover shows an improved use of working capital.

Industry Comparison and Deviations: #

Direct, quantified industry averages for all presented ratios are not provided within the document, therefore, specific deviations cannot be provided.

Sona BLW Precision Forgings Limited - Segment Performance Analysis (FY24) #

Revenue and Profitability Metrics with Growth Rates #

• Overall FY24 revenue grew by 19% year-on-year, reaching INR 31,848 million. EBITDA grew by 30%, and net profit by 31%.
• BEV Segment: FY24 revenue increased by 32%, contributing 29% of total product revenue (up from 26% in FY23).
• Non-BEV Segment: FY24 revenue, grew by 15%.
• Power Source: Power source-neutral products constituted the largest revenue share (37%), followed by BEV (29%), micro-hybrid/hybrid (24%), and ICE-dependent products (10%). The share of ICE-dependent products has declined from 25% in FY21.
• EBITDA Margin: FY24 increased above 28%.

Market Share and Competitive Position #

• Differential Gears: Global market share increased from 7.2% in CY22 to 8.1% in CY23.
• Starter Motors: Global market share increased from 4.0% in CY22 to 4.2% in CY23.
• Order book: FY24 Added, INR 51 Billion, Net order book increased to INR 226 Billion and 79% from EV programs.

Key Products/Services Performance #

• Differential Gears: Largest revenue contributor (32% in FY24).
• Differential Assemblies: Contributed 24% of revenue in FY24.
• Micro/Plug-in Hybrid Starter Motors: Contributed 24% of revenue in FY24.
• Conventional Starter Motors: Contributed 10% of revenue in FY24.
• Traction motors & controllers: Contributed 5% of the revenue in FY24.
• New Products: Eight new products were introduced in the last three years, contributing to ~50% of the INR 207 billion of new order wins. One new product was added in FY24

Geographic Distribution and Market Penetration #

• North America: Largest market, contributing 40% of FY24 revenue.
• India: Second-largest market, contributing 28% of FY24 revenue.
• Europe: Contributed 26% of FY24 revenue.
• Asia: Contributed 5% of FY24 revenue.
• Rest of the World: Contributed 1% of FY24 revenue.
• New Plant: Setting up of a new Plant in Mexico to better serve their current customers and expand in North America.

Segment-wise CAPEX and ROIC #

• ROCE: Improved to 31% in FY24 (from 30.4% in FY23).
• ROE: Increased to 28.5% in FY24 (from 26.6% in FY23).
• Capex: INR 3,191 million was deployed in capex

Operational Efficiency Metrics #

• Working Capital Turnover: Improved from 4.2 in FY23 to 4.6 in FY24.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Focus on increasing market share in core products and developing new products.
  • Strategic acquisition of NOVELIC to expand into sensors and software.
  • Technology licensing agreement with Equipmake for high-voltage powertrain.
  • Expansion of manufacturing capabilities with a new plant in Mexico.
  • Increased R&D expenditure planned for FY25, to at least 1% more of revenue than the previous year.
• Challenges, Concern and Risks:
  • Geopolitical uncertainties.
  • Volatility in raw material prices.
  • Potential disruption.
  • Change in regulation.

Strategic Risks #

• Severity: High. The automotive industry is undergoing rapid transformation (E.P.I.C. - Electric, Personalized, Intelligent, and Connected).
• Likelihood: High. BEV revenue share increased from 26% (FY23) to 29% (FY24), and 79% of the INR 226 billion order book is from EV programs.
• Trend: Increasing.
• Mitigation Strategies: Diversifying revenue mix across geographies, products, and market segments. Increased R&D spending(~INR 1,966 million since listing).
• Control Effectiveness: Partially effective. BEV revenue grew by 32% in FY24, but reliance on ICE-dependent products is down to 10%.
• Potential Financial Impact: Significant. Revenue, EBITDA, and PAT have all grown substantially since the IPO (2.0x, 2.0x, and 2.4x, respectively, from FY21), driven largely by new products and EV programs. Failure to adapt could impact future growth.

Operational Risks #

• Severity: Medium to High. Geopolitical instability, supply chain disruptions (Red Sea crisis), and the COVID-19 pandemic, and strikes are mentioned.
• Likelihood: Medium. The document mentions several operational challenges, including those in the domestic market.
• Trend: Stable, but with potential for volatility due to external factors.
• Mitigation Strategies: Diversifying sourcing and shipping strategies. Operational agility, contingency plan implementation.
• Control Effectiveness: Appears effective, as the company maintained operations despite disruptions. No specific downtime or loss figures are provided.
• Potential Financial Impact: It will affect the overall cost of manufacturing operations.

Financial Risks #

• Severity: Medium. Volatility in raw material prices and foreign exchange rates are identified.
• Likelihood: Medium to High. The Company operates internationally and is exposed to fluctuations.
• Trend: Stable.
• Mitigation Strategies: Hedging mechanisms, and pass-through pricing.
• Control Effectiveness: Partially effective. The Company has mechanisms to monitor and manage risks, but the effects cannot always be fully eliminated. Material cost as a percentage of total income decreased from 45% (FY23) to 43% (FY24), because of an improved product mix.
• Potential Financial Impact: Expense and profit are affected. For instance, total expenditure registered a y-o-y increase of 16% at INR 25,287 million in FY 2023-24, compared to INR 21,747 million during FY 2022-23.

Compliance/Regulatory Risks #

• Severity: Medium. Changes in regulations in the automotive industry, particularly environmental regulations are called out as a factor.
• Likelihood: Medium. Regulatory changes are ongoing.
• Trend: Increasing.
• Mitigation Strategies: Robust governance and compliance framework. Regular training and awareness sessions for employees.
• Control Effectiveness: High. The Company won the ‘Golden Peacock Award for Excellence in Corporate Governance-2023’.
• Potential Financial Impact: Not quantified.

Emerging Risks #

• Severity: High. Technological disruption (electrification, personalization, intelligence, and connectivity) is identified.
• Likelihood: High. The industry is rapidly evolving.
• Trend: Increasing.
• Mitigation Strategies: Investment in R&D (at least 1% more of our revenue than the previous year), acquisition of NOVELIC, technology licensing agreement with Equipmake. Doubled the product portfolio in the last three years, adding products in the Sensors and Software segment.
• Control Effectiveness: Partially effective, evidenced by growth in BEV revenue and new product development.
• Potential Financial Impact: 8 new products have been introduced to the offering over the past three years. The focus on innovation has been recognised by our customers, who have awarded Sona Comstar new business worth over INR 100 billion for the products we developed in the last three years.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• The Company aims to achieve 45% of its revenue from EV-targeted products by 2026. In FY24, BEV revenue share was 29%, growing from 14% in FY21, indicating progress towards the electrification goal.
• The Company has shifted vision from an automotive to all forms of mobility.
• Company revised technology roadmap to align with trends in electric, personalized, intelligent, and connected (E.P.I.C) mobility.

Competitive Advantages and Market Positioning #

• The Company increased its global market share in differential gears to 8.1% in CY23, up from 5.0% in CY21. The global market share in starter motors rose to 4.2% in CY23 from 3.0% in CY21.
• Maintained an average EBITDA margin of over 26% over the past 25 years, including the last three years as a listed company.
• Company has diversified revenue and customer base, demonstrating customer trust and confidence in a market.

Innovation Initiatives and R&D Effectiveness #

• The Company has successfully added eight new products to its portfolio in the last three years, reaching a total of 17 and commercializing the integrated motor controller.
• New product development is central to the growth strategy, with new products contributing over INR 100 billion to the net order book.
• Acquired NOVELIC, adding a ‘Sensors and Software’ vertical, expanding capabilities in mmWave radar sensing, perception, and chip design.
• Partnered with Equipmake Plc. to develop high-voltage powertrain technology, expediting entry into new market segments.
• R&D investments of ~INR 1,966 million since listing.

M&A Strategy and Execution #

• The Company successfully completed the acquisition of a 54% stake in NOVELIC.
• The Company made plans to invest and acquired 26% of equity share capital of SPVs in Haryana and Maharashtra.

Management’s Track Record in Execution #

• The management doubled key financial metrics since the IPO in FY21, with revenue and EBITDA doubling and PAT increasing by 2.4x.
• The management has increased the global market share in legacy products.
• The Group was recertified as a ‘Great Place to Work’ with an improved score, and received the ‘Golden Peacock Award for Excellence in Corporate Governance-2023’.
• Free cash flow (FCF) grew by 88% in FY24.

Capital Allocation Strategy #

• The company plans that its internal cash flow is adequate to finance the capital expenditure needed for order book growth, while also distributing 25-33% of profits as dividends.
• ROCE and ROE improved to 31% and 28.5%, respectively.
• The capital allocation strategy will be adjsuted as and when the Company pursue an inorganic opportunity.

Organizational Changes and Their Impact #

• Group Chief Technology O/fficer, Mr. Kiran Deshmukh, will retire on October 31, 2024.
• Mr. Praveen Chakrapani Rao was appointed as the new CTO, effective November 1, 2024.

ESG Framework and Sustainability Analysis #

Environmental Metrics and Targets #

• Energy Consumption: Achieved a 4% improvement in energy intensity in FY 2023-24. Establishing a total solar group captive capacity of 21.35 MWp. 2% of FY 2023-24 energy consumption was from the currently installed roof-top solar capacity of 2.93 MWp, showing a 49% growth from the previous year.
• Emissions Intensity: Maintained emissions intensity at FY 2022-23 levels, which was already 10% lower than FY 2021-22, despite operational growth. Scope 2 emissions represent approximately 77% of total energy consumption.
• Water Consumption: A 13% improvement in water intensity per rupee of turnover was achieved in FY 2023-24 compared to FY 2022-23. Total water consumption was 130,342 kiloliters, sourced entirely from third parties.
• Waste Management: Generated 19,550 metric tonnes of non-hazardous waste in FY 2023-24, with plastic waste accounting for only 0.5%, showing a 50% reduction.

Social Responsibility Programs #

• CSR Spending: INR 67 million was spent and committed towards CSR initiatives during FY 2023-24.
• CSR Focus Areas: Environmental sustainability, women’s empowerment, skill development, education, and livelihood.
• Startup Support: Nine startups have been supported in mobility, and two in innovative technologies, in partnership with FITT, IIT Delhi, and CIIE, IIM Ahmedabad.
• Education Support: Sustaining women’s education through scholarships with Ashoka University and improved school infrastructure in Tamil Nadu, benefiting 5,459 students.
• Skill Development: Set up skill development centre in partnership with Tata Strive
• Digital Literacy Centers: in association with Youthreach were established.
• CSR Impact Assessment: CSR programs were assessed in the ‘Platinum’ category by an independent agency.
• Awards: Received the CII-ITC Sustainability Award 2023 - Commendation for Significant Achievement in CSR.
• Workforce Diversity: Women employees constitute 6% of the total workforce of 4,674, doubling from the previous year.
• Employee Engagement: Recertified as a ‘Great Place to Work’ with a higher score.

Governance Structure and Effectiveness #

• Corporate Governance Award: Received the ‘Golden Peacock Award for Excellence in Corporate Governance-2023’ at the national level.
• Board committees: Include Audit, Nomination and Remuneration, Corporate Social Responsibility, Stakeholders Relationship, Risk Management, Environment Social and Governance, Capex, and M&A.
• Board Evaluation: The Board carried out an annual evaluation of its performance, its committees, and individual directors. Feedback was incorporated into the Corporate Governance Report.
• Ethics and Compliance: Implemented policies on ethics, compliance, data privacy, cyber security, and risk mitigation. A Whistle Blower Policy and mechanism are in place.
• Secretarial Audit: Voluntary quarterly secretarial audits were conducted, with reports presented to the Audit Committee and Board.
• Shareholders satisfaction: A Shareholders’ Satisfaction Survey was conducted and the feedback have been addressed, this included the establishment of an Investor Grievance Redressal Policy.
• Related Party Transactions: All related-party transactions were reviewed and approved by the Audit Committee, ensuring they were at arm’s length and in the ordinary course of business.

Sustainability Investments and ROI #

• Renewable Energy Investment: Investments made in captive solar power plants with definitive agreements for 21.35 MWp solar capacity in Maharashtra, Haryana, and Tamil Nadu.
• R&D Investments: INR 1,966 million was invested since listing, with an increase of at least 1% of revenue over the previous year planned for FY 2024-25.
• EV Revenue Target: Aim to achieve 45% of revenue from EV-targeted products by 2026.
• New Products: 50% of new orders (about INR 100 billion) in last three years were new products.

ESG Ratings and Peer Comparison #

• Sustainalytics ESG Risk Rating: Rated ‘Low Risk’ with a score of 14.3, ranking among the top 9% of 16,421 companies globally as of March 31, 2024.

Regulatory Compliance and Future Preparations #

• BRSR Reporting: Published the Business Responsibility and Sustainability Report (BRSR) a year ahead of the mandatory requirement.
• Data Privacy: Updated Data Privacy framework in compliance with the Digital Personal Data Protection Act, 2023, and the General Data Protection Regulation (GDPR).
• PLI Scheme The Company has received certifications for its 2 (two) hub wheel motors for electric two-wheelers under the Product Linked Incentive (PLI) Scheme for Automobile and Auto Component Industry in India from the Ministry of Heavy Industries, for availing the benefits/incentive under PLI Scheme.

Future Outlook: Bharat BLW Precision Forgings Analysis #

Management Guidance and Assumptions #

• Management’s updated vision indicates a shift from “automotive” to “mobility” technology.
• Management believes the future of mobility is electric, personalized, intelligent, and connected (E.P.I.C.).
• Management aims to achieve 45% of revenue from EV-targeted products by 2026.
• Management assumes internal cash flow generation, based on an estimated EBITDA margin range of 26-28%, will finance growth capex and distribute 25-33% of profits as dividends.
• Management aims for continued global market share growth, from 7.2% to 8.1%, and from 4.0% to 4.2% global share in starter motors.
• Management assumes its current business model is resilient.

Market Growth Forecasts #

• S&P Global Mobility forecasts global light vehicle sales to reach 88.3 million units in CY 2024, a 2.8% year-over-year growth.
• IEA’s Stated Policies Scenario (STEPS) projects global electric car sales to reach a 40% share by CY 2030.
• The Advanced Driver-Assistance Systems (ADAS) market is projected to grow to USD 75 billion by CY 2030 (Capgemini).
• ADAS and Autonomous Driving (AD) could generate USD 300-400 billion in business in the passenger car market by 2035 (McKinsey).
• Over 45% of global new car sales could feature advanced personalization and connectivity levels by CY 2030 (McKinsey).
• 95% of cars sold globally will be connected by CY 2030, with telematics service subscribers reaching 376 million by 2026 (Capgemini).

Planned Strategic Initiatives #

• Increasing market share in existing products and adding new products.
• Developing new products in-house, using core capabilities in gears and motors.
• Forming technology partnerships to expedite progress on the product roadmap (e.g., Equipmake Plc partnership).
• Acquiring companies to expand the portfolio of products/capabilities (e.g., NOVELIC acquisition).
• Setting up a new plant in Mexico to serve North American customers and repurposing the existing China plant for traction/suspension motors.
• Investing in captive solar power plants in Maharashtra, Haryana, and Tamil Nadu to increase renewable energy use.
• Focus on growth in the battery electric vehicle (BEV) segment, with an order book where 79% are from EV programs.

Capital Expenditure Plans #

• Investment in a special purpose vehicle (SPV) for setting up a captive power-generating facility in Haryana with a solar capacity of 14.85 MWp.
• Investment in a special purpose vehicle (SPV) for setting up a captive power-generating facility in Maharashtra with a solar capacity of 4.00 MWp.
• Plans to finalize documents for setting up a 2.5 MWp captive power-generating facility for the Chennai plant.
• Investment of INR 75 million in SPVs for Haryana and Maharashtra plants.
• During FY 2023-24, INR 3,191 million was deployed in capex.
• Increased R&D expenditure planned for FY 2024-25, at least 1% more of revenue than the previous year.

Efficiency Improvement Targets #

• Driveline business: Reduce specific energy consumption by 4% by 2025 and 8% by 2030 over a 2019 baseline.
• Motor business: Reduce specific energy consumption by 4% by 2025 and 8% by 2030 over a 2021 baseline.
• Driveline business: Reduce Scope 1 emissions by 5% by 2025 and 10% by 2030 over a 2019 baseline.
• Motor business: Reduce Scope 1 emissions by 5% by 2025 and 10% by 2030 over a 2021 baseline.
• Driveline business: Reduce Scope 2 emissions by 15% by 2025 and 30% by 2030 over a 2019 baseline.
• Motor business: Reduce Scope 2 emissions by 20% by 2025 and 40% by 2030 over a 2021 baseline.
• Driveline business: Reduce specific water consumption by 10% by 2025 and 15% by 2030 over a 2019 baseline.
• Motor business: Reduce specific water consumption by 20% by 2025 and 30% by 2030 over a 2021 baseline.
• Company-level: Reduce waste to landfills by 8% by 2025 and 10% by 2030 over the 2022 baseline.
• Driveline business: Reduce the use of non-recyclable materials by 10% by 2025 and 20% by 2030 over a 2020 baseline.

Potential Challenges and Opportunities #

• Challenges:
  • Escalation of geopolitical uncertainty.
  • Volatility in key raw material prices.
  • Potential disruptions due to pandemics or similar events.
  • Changes in regulations and industry trends.
• Opportunities:
  • Growing trend of electrification in powertrains.
  • Increasing demand for personalized vehicle experiences.
  • Integration of intelligent technologies in vehicles.
  • Expansion of vehicle connectivity.

Scenario Analysis and Sensitivity #

• Interest Rate Sensitivity: A 1.00% increase in interest rates would negatively impact profit after tax by INR 16.86 million; a 1.00% decrease would have the opposite effect.
• Foreign Currency Sensitivity: A 1.00% increase/decrease in the INR/USD exchange rate would impact profit after tax by +/- INR 24.74 million. A similar 1.00% fluctuation in INR/EURO would have a +/- INR 3.78million. The impact is smaller for other currencies like JPY, CAD, CHF and RSD.
• The Company notes in its definitions that it is using assumptions for their fair value assessment and that they are subject to change.
• The analysis does not perform sensitivity analysis to the underlying assumptions used in key performance areas, such as sales price, volume, or market growth.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Walker Chandiok & Co LLP issued an unmodified opinion on the standalone and consolidated financial statements.
• The audit reports do not contain any qualifications, reservations, or adverse remarks for both the standalone and consolidated financials.
• Audit report was prepared with the accounting software used that features audit trails.
• The audit trail was operating through the year for relevant transactions.
• Exception: audit trail feature was not enabled at the database level for the accounting software to log direct changes.

Key Accounting Policies and Changes #

• The financial statements adhere to Indian Accounting Standards (Ind AS) and the Companies Act, 2013.
• The Company uses the historical cost convention except for certain financial instruments measured at fair value.
• Amendments to Ind AS 1 and Ind AS 8, effective April 1, 2023, related to the disclosure of accounting policies and the definition of accounting estimates; however, these amendments did not materially impact the Company.
• Depreciation on property, plant, and equipment is provided on the straight-line method based on useful lives prescribed in Schedule II of the Act.
• Intangible assets are amortized on a straight-line basis over their estimated useful lives.
• Goodwill and indefinite-lived intangible assets (Brand) are tested annually for impairment.
• Revenue recognition follows a 5-step process as per Ind AS 115.
• Employee stock options are accounted for using the fair value method.

Internal Control Effectiveness #

• The Company maintains an internal financial controls system, and the auditors expressed an unmodified opinion on its adequacy and operating effectiveness with reference to the financial statements.
• The management asserts responsibility for establishing and maintaining internal controls.
• An internal audit system is in place, reviewed by the Audit Committee.

Regulatory Compliance Status #

• The Company has complied with all the mandatory requirements of Corporate Governance as per the Listing Regulations.
• The Company states compliance with all applicable statutory dues, including GST, provident fund, and others.
• No penalties or strictures were imposed by stock exchanges, SEBI, or other statutory authorities related to the capital market, with one exception, details of which are included in the Corporate Governance Report.
• A penalty of INR 608,264 was levied under section 11AC(1)(C) of the Central Excise Act, 1944. An appeal was made.
• The Company is pursuing voluntary secretarial audit on a quarterly basis.
• Company is compliant with SEBI Regulations.

Legal Proceedings and Their Potential Impact #

• There are pending litigations and disputes, with details disclosed in Note 39 of the standalone financial statements.
• There were no instances reported of fraud.

Related Party Transactions #

• All related party transactions were conducted in the ordinary course of business and at arm’s length.
• Details of related party transactions are provided in Note 36 to the standalone financial statements.
• The company in compliance with regulation 23(9) of the Listing Regulations and have disclosed the statement of related party transactions on a consolidated basis.

Subsequent Events #

• The Board of Directors recommended a final dividend of INR 1.53 per equity share on April 30, 2024, subject to shareholder approval.
• The plant at Mexico was inaugurated on the 20th of April 2024.
• On 30th of April, the board has approved an investment for setting up a solar power plant at the Chennai facility.
• There have been no material changes or commitments affecting the financial position of the Company between the end of the Financial Year and the date of the Board’s Report.

Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The use of an external expert for the valuation of Novelic d.o.o. Beograd, suggests that the Company may not have the needed expertise and it may show an area of concern. The adoption of Ind AS, combined with the clean audit opinion, and the absence of modifications suggests a high quality of financial reporting. The use of the Black-Scholes model for ESOP valuation and engagement of independent actuaries for defined benefit obligations indicate robust accounting practices.
• Regulatory Risk Assessment:
  • The Company demonstrates compliance with key regulations, including the Companies Act, 2013, Listing Regulations.
  • Low Risk: The Company has a Whistle Blower Policy in place, with one complaint, and the matter has been investigated and disciplinary action has been taken
  • Low Risk: No amounts were required to be transferred to the Investor Education and Protection Fund.