Sona BLW Gets Target Price Cut From Citi But Long-Term Outlook Positive

Citi Research on Tuesday cut the target price for Sona BLW Precision Forgings Ltd. from Rs 630 to Rs 570 citing potential risks, like lower global demand and possible delays in existing orders.

However, the brokerage has maintained its 'buy' rating emphasising the strength of its order book and diversification. The long-term growth potential remains solid, despite the current challenges, it said in its report.

Near-term uncertainty remains even as the firm has a strong order book. Weak demand in key markets like the US and EU, geopolitical risks, and unclear US import duties — accounting for 43% of Sona’s nine-month revenue in fiscal 2025 — pose challenges. As a result, Citi has reduced its earnings estimates by 2-3% for financial year 2025-2027E.

Citi has also lowered its target P/E multiple for Sona to 42 times (from 45 times), aligning with adjustments made for other B2B part makers in its coverage. According to the brokerage, the key risks include slower EV adoption, potential shifts in client demand, technological obsolescence, increased competition, and underperformance of new acquisitions.

However, Sona Comstar continues to stand out in the Indian business-to-business auto parts sector, due to its substantial order book. At the end of the third quarter of this fiscal, the order book totaled Rs 23,200 crore, representing a strong multiple of 7.3 times fiscal 2024 revenue, 6.6 times financial year 2025E revenue, and 4.6 times fiscal 2026E revenue. This backlog provides long-term visibility and underpins Citi’s positive stance.

A healthy balance sheet, bolstered by a Rs 2,400 crore QIP, adds to the company’s financial stability.

Beyond the sheer volume of its order book, Sona's diversification efforts also stand out. The company has ventured into new markets and business segments, such as its acquisition of Escort Kubota’s Railway Equipment division. These strategic moves are expected to provide additional growth catalysts, potentially driving revenue growth above industry levels, Citi said.