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MOSL: SONA BLW PRECISION FORGING (Neutral)-Inline; reasonable performance in a challenging quarter

• Operating performance in 1QFY23 was in line, as revenue growth was restricted by weakness in the EU and China, whereas margin was impacted by cost inflation. Ramp-up in the EV segment continues strongly, with the contribution to revenue/order book at 29%/67% in 1QFY23, which is supported by new order wins, including traction motor order wins from mainstream 2W OEMs. Near-term challenges on semiconductor shortage, weakness in the EU, COVID-led lockdowns in China, and commodity prices will keep its performance under check.
• We lower our FY23/FY24 EPS estimate by 5.5%/9% to account for potential risks to revenue from the EU and China and a higher tax rate. We maintain our Neutral rating with a TP of INR610 per share (50x Jun’24E consolidated EPS).

RM cost restricts margin, but tax refunds boost PAT

• Revenue/EBITDA/PAT grew 18%/3%/5% YoY to ~INR5.9b/INR1.4b/ INR0.8b in 1QFY23.
• While revenue from BEVs grew 68% YoY, non-BEV revenue grew 6% as it was impacted by weakness in the EU and China.
• Gross margin eroded by 210bp YoY and 60bp QoQ to 54.5%, due to higher RM cost pressures. RM cost inflation led to a 340bp YoY contraction largely due to an arithmetic impact.
• EBITDA margin declined by 350bp YoY and 40bp QoQ to 24.2% (est. 24%). There was a 60bp impact of power outages and one-time expenses relating to tech partnerships.
• Higher than estimated tax restricted adjusted PAT growth to INR758m (up 5% YoY, est. INR790m).

 

Highlights from the management commentary

• Revenue from BEV grew 68% YoY and 9% QoQ to INR1.6b, implying a BEV revenue share of 29% (v/s 20%/28% in 1Q/4QFY22).
• Net order book increased to ~INR205b (v/s INR186b in 4QFY22), with EVs constituting 67% of the order book. It won six new BEV programs and four new customers in 1QFY23. It now has 36 EV programs across 23 different customers.
• In 1QFY23, it bagged three significant EV programs, which includes: a) two programs from an EU PV OEM for supply of final drive assemblies worth INR16.1b over its lifetime, with a SOP in FY26, b) a traction motor (PMSM) order for e-2W from a leading incumbent OEM, with an order value of INR9.1b, starting from 2HFY23.
• It expects three large orders to go into production in 2HFY23 and almost 50% of the order book to go into serial production by FY25.

 

Valuation and view

• While the BEV driveline will continue to drive growth, complemented by the addition of new products, traction motors have started to get traction, with new order wins.
• However, valuations at 78x/50.6x FY23E/FY24E consolidated EPS largely factors in these positives. We maintain our Neutral rating with a TP of INR610 per share (~50x Jun’24E consolidated EPS).