How Sona BLW Precision will benefit from the acquisition of Serbian firm NOVELIC: Analyst explains

Auto parts manufacturer Sona BLW Precision Forgings share closed among top gainers on Tuesday as the company announced the acquisition of 54 stakes in Serbian-based radar sensors manufacturing company NOVELIC for Euro 40.5 million.

The transaction values NOVELIC at an enterprise value of Euro 64.5m on the pre-money basis and Euro 7 million on the post-money basis, with an implied valuation multiple of 26x on CY22E PAT (profit after tax). The transaction is expected to close by March 2023.

Analysts at Motilal Oswal believe this is a positive development for Sona BLW Precision as its offers strong growth opportunities over the long term in autonomous and connected technology. The brokerage said that the acquisition will add a third business vertical of sensors and software.

Strategic Investment Rationale

1 NOVELIC is a profitable high-tech, fast-growing company in the USD 43 billion ADAS (Advanced driver-assistance systems) sensor market with 27 per cent net profit margins. It is nearly a zero-net debt company.

2 Serbia-based company has a unique and patented mmWave radar technology, which is the best solution for the in-cabin business as it offers high accuracy, low costs, and privacy protection.

3 The company has full vertical integration from chip and sensor design to signal processing software, which allows partnerships across the value chain — auto OEMs, AV makers, Tier-1s, and chip manufacturers.

4 NOVELIC’s operations will continue to be led by its founders, ensuring continuity, while leveraging Sona’s scale and customers across geographies. It is a leader in short-range radar sensing and offers solutions in transportation vehicles, agri machines, construction machines, e-bikes, motorcycles, and three-wheelers.

The counter ended over 6 per cent higher to Rs 448 and Rs 447.90 per share on the BSE and NSE, respectively, today. The scrip surged almost 9 per cent to touch a day’s high level of Rs 458.90 per share on the BSE intraday and is trading 42 per cent lower from its 52-week high of Rs 795 apiece.

Sona BLW Precision’s focus on expanding product portfolio, global scale, and expanding customer base, shall translate into strong earnings growth and healthy capital efficiency, Motilal Oswal said, maintaining a Neutral rating on the stock with a target price of Rs 472 per share (6 per cent upside).