Reviews

In this edition, we have reviewed Sona BLW Precision Forgings and Ujjivan Small Finance Bank We suggest our reader-investors to HOLD Sona BLW Precision Forgings and Ujjivan Small Finance Bank 

We had recommended Sona BLW Precision Forgings Ltd. in Volume 39, Issue No. 3 dated January 1, 2024 — January 14, 2024, under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹614.50. We had recommended the stock based on the company’s drive toward technology development, product innovation and customer diversification. Sona BLW Precision Forgings is a leading Indian automotive technology company that designs, manufactures and supplies missioncritical automotive systems and components. 

This includes differential assemblies, gears, starter motors and motor control units. The company focuses on research and development and develops mechanical and electrical hardware systems, components and software solutions to meet customer demands. In Q1FY25, on a consolidated basis, its revenue increased by 21.85 per cent YoY to ₹891.18 crore compared to ₹731.38 crore from the previous year’s same quarter. On a sequential basis, the revenue increased by 0.8 per cent. The PBIDT excluding other income increased by 23.06 per cent to ₹249.31 crore YoY as compared to ₹202.59 crore from the previous year’s same quarter, while sequentially increasing by 0.94 per cent. Its net profit stood at ₹141.71 crore compared to ₹112.04 crore, a YoY increase of 26.49 per cent, while sequentially decreasing by 4.3 per cent from ₹148.08 crore. 

At TTM, the shares of Sona BLW Precision Forgings are trading at a PE of 74.5 times, which is lower than its three-year median PE of 79.4 times, whereas the industry PE stands at 36.2 times. If we look at its PBV, it is currently at 15.7 times, which is higher than the industry PBV of 4.14 times. The company has a three-year average return on equity (ROE) of 19.6 per cent and a return on capital employed (ROCE) of 22.3 per cent. The company is optimistic about future growth potential, focusing on technology development, product innovation and customer diversification. 

It is strategic in electrification, new product development and expanding their customer base. The company has approved a resolution for fundraising of up to ₹2,400 crore to support acquisitions. NOVELIC is aiming to become one of the world’s most respected sensing companies. It has commercialised two new products, a park gear for electric commercial vehicles and an in-cabin sensor for child presence detection. The company has expanded its net order book to ₹233 billion. Hence, we recommend HOLD. 

We had recommended Ujjivan Small Finance Bank Ltd. (UJSFB) in Volume 39, Issue No. 3 dated January 1, 2024 — January 14, 2024, under the ‘Cover Story’ segment at a price of ₹56.77. We had suggested stock based on the bank’s focus on a mature market, healthy asset quality and financials. UJSFB is a diversified small finance bank that transitioned from an NBFC (Ujjivan Financial Services Ltd.) in February 2017, which primarily catered to low-income and middle-income individuals and businesses in the metro and urban areas with limited or no access to formal banking and finance channels. 

UJSFB’s product portfolio is spread across microfinance – group and individual products, MSE finance and affordable housing finance. The bank operates pan-India with a presence in 25 states and UTs through 629 branches, with around 66 per cent of its branches in the urban and metro areas. In Q1FY25, on a standalone basis, the bank’s revenue increased by 22.56 per cent YoY to ₹1,577.18 crore compared to ₹1,286.88 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 3.18 per cent.The PBIDT excluding other income increased by 28.63 per cent to ₹635.72 crore YoY as compared to ₹494.23 crore from the previous year’s same quarter, while sequentially increasing by 6.85 per cent. Its net profit stood at ₹509.52 crore compared to ₹457.89 crore, a YoY increase of 11.28 per cent, while sequentially decreasing by 1.74 per cent from ₹518.56 crore. At TTM, Ujjivan Small Finance Bank is trading at a price-to-adjusted book value of 1.52 times, which is lower compared to its peers. 

The bank has a return on assets (ROA) of more than 3.48 per cent, which remains one of the best in the industry. The bank’s secured and unsecured book mix has improved to 31.3 per cent, with the MSME vertical scaling up. The FIG business has grown by 48 per cent YoY, and the gold loan and vehicle finance business continue to grow. The bank’s asset quality and financials remain healthy, with a PAR of 4.2 per cent in June 2024. 

The bank plans to focus on mature markets like Tamil Nadu, Karnataka, Bihar, Uttar Pradesh and West Bengal, maintaining a 20 per cent asset book growth and ROE. The bank aims to achieve a 35 per cent secured book by the end of the financial year and actively pursue a universal bank license. Hence, we recommend HOLD.