Investors have cheered Sona BLW Precision Forgings Ltd’s entry into the sensor and software business. The auto component maker plans to acquire a 54% stake in Novalic, a Serbian company focused on autonomous driving and automation products.
The share price of Sona BLW rose nearly 6% on the NSE on Tuesday.
The deal opens the doors to a growing market for the company as more and more vehicles turn electrified and autonomous. The market size for advanced driver assistance systems (ADAS) sensors is estimated to reach $43 billion by 2030.
The acquisition adds a new segment, ‘Sensors and Software’, for Sona, which is present in manufacturing and supplying automotive systems and components to original equipment manufacturers, including electric vehicle manufacturers.
“We like the company’s strategy to focus on high technology products for the global market,” analysts at Nomura Financial Advisory & Securities (India) said in a report on January 9.
Novelik has seen steady growth in revenue and profit after tax over the years. However, the transaction may not move the needle much in terms of earnings for Sona. For perspective, Novelik’s CY22 revenue is estimated at €9.3 million, or roughly $10 million. This is a mere 3.3% of Sona’s H1FY23 annual revenue. However, the management expects Novelik’s revenue to reach $100 million within 6-7 years. It expects the acquisition to be earnings-per-share accretive from the first year.
Analysts said the valuation multiple of the deal is reasonable given the growth opportunities.
Novelik’s enterprise value is €64.5 million on a pre-money basis, reflecting a valuation multiple of 26x to CY22 estimated profit after tax. The acquisition is expected to close by FY23-end.
Sure enough, despite the rise in Sona’s share price on Tuesday, the stock is down about 44% from its 52-week high. 794.80 per share in January 2022.
Initially, the stock declined due to expensive valuations. Global challenges, such as supply chain issues and a muted European market, added to investors’ woes.
In addition, the outlook for one of its major customers was weak. However, there is not much relief on valuations. A report by Nuwama Research said that the valuation of the stock has increased due to the continuous cut in earnings.
Bloomberg data shows that the stock is trading at 41 times FY24 estimated earnings.
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