Sona BLW Precision shares jump 11% on ₹1,600 crore railway equipment deal with Escorts Kubota, strong Q2 results

Sona BLW Precision Forgings share price jumped 11% to ₹713.75 apiece on Thursday, October 24, after the company entered into an agreement with Escorts Kubota to acquire its railway equipment division (RED) as a going concern on a slump sale basis.

At the same time, Escorts Kubota share price plunged 10% to the day’s low of ₹3,345.15.

The transaction is being carried out for a lump sum cash consideration of ₹1,600 crore, subject to the terms of the agreement, Sona BLW said in its Wednesday exchange filing.

Escorts Kubota’s railway division has one of the most extensive product portfolios amongst railway component suppliers in India. It is among the leaders in brakes, couplers, suspension systems, and friction and rubber products. Additionally, RED has a strong pipeline of new products, which includes HVAC systems, electrical control panels, vacuum evacuation systems, and automatic plug doors.

It has a long growth runway as new products move across the R&D chain. RED reported revenue of nearly ₹950 crore and EBIT of nearly ₹179 crore in FY24. The proposed acquisition of RED is expected to be earnings-accretive for Sona Comstar right from the first year and offers significant growth opportunities, according to the company’s regulatory filing. 

The acquisition of RED enables Sona BLW to tap into the growing Indian Railways market, leverage RED’s extensive experience and approved products, and contribute to environmentally friendly transportation solutions, aligning with its strategic goals of promoting clean mobility.

Commenting on the proposed acquisition of RED, Vivek Vikram Singh, MD & Group CEO of Sona Comstar, said: “We are delighted to step into the railway components sector with the signing of the agreement to acquire the Railway Equipment Division of EKL. The proposed acquisition of Railway Equipment Division aligns with our vision statement as we expand into the broader mobility sector. Once completed, the ‘Railway Equipment Division’ acquisition will enhance our clean mobility product offerings by adding a market-leading railway components business.”

“The railway industry presents long-term growth opportunities, and with the ‘Railway Equipment Division’ business, we see significant potential to broaden our product range by incorporating advanced technology and engineered products,” he added.

Healthy numbers in Q2

The company also released its Q2FY25 results on Wednesday, reporting a record quarterly revenue of ₹925 crore, representing 17% year-on-year (YoY) growth, primarily driven by the expansion of its EV programs.

The revenue from battery electric vehicles (BEVs) accounted for 36% of total revenue, with BEV revenue growing by 53% YoY. The EBITDA stood at ₹255 crore, yielding a margin of 27.6%, up 14% YoY.

The net profit after tax reached ₹144 crore, with a net profit margin of 15.5%, reflecting a 16% YoY improvement. The company said that its EV programs comprise 78% of the net order book, totalling ₹23,100 crore as of September 30, 2024.

For the first half of FY25, the company reported a revenue of ₹1,818 crore, a 19% YoY surge. Its EBITDA reached ₹506 crore in H1FY25, reflecting an EBITDA margin of 27.8%, also representing a 19% YoY growth. Furthermore, the net profit stood at ₹286 crore, translating to a net profit margin of 15.7% and a notable 21% growth YoY. 

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