Sona BLW Q1 Review: Jefferies, CLSA Cut Target Price Over Weak Earnings

Brokerages have cut target price for Sona BLW Precision Forgings Ltd. post its first quarter results for fiscal 2025-2026. Jefferies has maintained its 'buy' rating with a target price cut to Rs 515 from Rs 565, CLSA has maintained its 'outperform' rating with a target price cut to Rs 566 from Rs 582.

Jefferies retains buy rating with a target price cut due to weak earnings visibility, but good capabilities. "Our revised target price is based on 45 times Sep 27E EPS. We retain buy, but keep it low in pecking order until earnings visibility improves," it added.

The brokerage has cut FY26-28E EPS by 13-19% factoring lower NA exports and traction motor revenues, as well as lower margins. "We now expect Sona's EPS to decline 11% year-on-year in FY26E, but subsequently grow at 19% CAGR over FY26-28E," it added.

Sona's Q1 revenue declined 5% year-on-year, dragged by volume decline at a key customer, supply constraints in heavy rare-earth magnets impacting traction motor production. The revenue was further dragged by delayed revenue recognition at a European customer and procurement slowdown from North American customers amid tariffs.

According to Jefferies, the company's volume decline at a key OEM, rare earth magnet constraints and tariff-led slowdown impacted Q1. "Its near-term earnings visibility is weak," it added.

The company's entry into China, full benefit of railway business acquisition, and alternate motor design to address rare earth constraints to provide some cushion.

The brokerage noted that while a weak macro is hurting Sona's near-term outlook and its 51 times FY26E is rich. "Sona has strong long-term growth potential with its expanding portfolio," it added.

CLSA maintains outperform for Sona BLW as much of the headwinds were concentrated this quarter. "Most of the headwinds would be limited to this quarter and improve gradually in coming quarters," it added.

The brokerage lowered its DCF-based target price from Rs 582 to Rs 566. With 28% upside potential, we maintain our out perform rating.

The brokerage has lowered FY26-27CL EPS 9-11% on the back of lower revenue due to softer demand for EVs in North America and Europe. "To reflect our estimate changes, as well as rolling forward by a quarter to Sept-27CL and changes in our WACC assumptions, we lower our target price," it noted.