This midcap auto components stock rallies over 11%: Here's why

Shares of Sona BLW Precision Forgings surged over 11 per cent at the day's high to Rs 713.75 in Thursday's trade (October 24) The sharp spike in the stock price came after Hong Kong-based brokerage CLSA upgraded the stock to 'outperform' from the earlier 'hold' view, while raising the target to Rs 715 from Rs 690.

CLSA upgraded the stock as it believes the acquisition of the railway equipment business of Escorts Kubota will be earnings accretive for the midcap company.

Meanwhile, the stock of Escorts Kubota traded with a cut of 7 per cent at Rs 3,452.6 per share on the BSE.

The company is set to enter the railway components sector with the execution of the agreement to acquire Escorts Kubota Limited’s Railways Equipment Division.

"Sona BLW Precision Forgings Ltd. (Sona Comstar), a leading global provider of mobility technology solutions, has entered into an agreement (Agreement) with Escorts Kubota (EKL) to acquire the Railway Equipment Division of EKL (RED), as going concern, on slump sale basis, for an enterprise value of INR 1,600 Crore (Rupees one thousand six hundred crore)," noted the company's press release.

The acquisition will be completed by September 30, 2025.

How will the acquisition of railway equipment business impact Sona BLW?

Zee Business analysts through the acquisition foresee the company's expansion into the broader mobility sector. Furthemore, the company's management stated that EPS will be accretive from FY26. The income from the RED business during the fiscal ending 2024 was reported at Rs 950 crore.

Sona BLW Precision Q2 results

During Q2FY25, the company's PAT increased 16% on-year, while revenue registered 17 per cent year-on-year (YoY) growth to Rs 925 crore. EBITDA during the period was recorded at Rs 255 crore with a margin of 27.6 per cent. 

Furthermore, EV programs contribute 78 per cent to the net order book of Rs. 23,100 crores as of September 30, 2024, added the company's press release.