Engineering Company is Set to Enter the Railways Components Sector as it Enters Into an Agreement to Acquire Escorts Kubota Ltd.’s Railways Equipment Division
The Indian Railways market presents a compelling opportunity, driven by several long-term growth factors and significant entry barriers.
Sona BLW Precision Forgings Ltd (Sona Comstar), a leading global provider of mobility technology solutions, has agreed (Agreement) with Escorts Kubota Ltd (EKL) to acquire the Railway Equipment Division of EKL (RED), as going concern, on slump sale basis, for an enterprise value of Rs 1,600 crore, subject to the terms of the Agreement. RED is a leading supplier of critical components for Railways, such as brakes and suspension systems for various rolling stocks. RED reported revenue of approx. Rs 950 crore and approx. EBIT of Rs 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.
The Indian Railways market presents a compelling opportunity, driven by several long-term growth factors and significant entry barriers. India's extensive railway network, rapid urbanisation, and increasing investment in rail infrastructure are likely to drive demand for technologically advanced and engineered components. Aligned with our strategic goal of promoting clean mobility, railways stand out as the most environmentally friendly mode of motorised transport. Increasing railways' share in passenger and goods transportation is crucial for India to meet its net-zero emissions commitment. With the proposed acquisition of RED, Sona Comstar will enter the railway component market and contribute to greener mobility solutions.
Indian Railways imposes high barriers to entry for component suppliers due to a strict vendor approval process. RED has over sixty years of experience in the railway component industry and has been a long-term partner of Indian Railways and major private railway OEMs. It is one of the few companies to have multiple products approved by Indian Railways. RED is India's only domestic player of scale to have received Silver-grade International Railway Industry Standard (IRIS) certification for brake systems. It operates a 600,000-square-foot manufacturing plant in the National Capital Region (Faridabad), equipped to design, develop, assemble, and test a wide range of products.
RED has one of the most extensive product portfolios amongst railway component suppliers in India. It is amongst 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. RED has a long growth runway as new products move across the R&D chain. Over the last five years, RED has grown revenue at 19% CAGR and EBIT at 18% CAGR. The acquisition of RED is subject to customary closing conditions, including the receipt of regulatory approvals. Ernst & Young LLP is the financial advisor to Sona Comstar on this transaction. Shardul Amarchand Mangaldas & Co. is the company's Legal Counsel, while KPMG is the financial diligence and tax diligence advisor.
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About Sona BLW Precision Forgings Limited
Sona BLW Precision Forgings Limited (Sona Comstar) is one of the world’s leading mobility technology companies. Founded in 1995, Sona Comstar is headquartered in Gurugram, India. It is a global supplier with manufacturing and assembly facilities, R&D centres, and engineering capability centres across India, the USA, Serbia, Mexico, and China. Sona Comstar designs, manufactures and supplies highly engineered, mission-critical systems and components to mobility OEMs. It is a leading supplier of driveline and traction motor solutions to the fast-growing global electric vehicle (EV) market. The company has strong R&D, engineering, and technological capabilities in precision forging, mechanical and electrical systems, radar sensors, and base and application software development. It is diversified across geographies, products, vehicle segments, and customers.
On Thursday, shares of Sona BLW Precision Forgings Ltd zoomed 11.10 per cent to an intraday day high of Rs 713.75 per share. The stock has an ROE of 21 per cent and an ROCE of 24 per cent. As of September 2024, FIIs increased their stake to 33.55 per cent and DIIs increased their stake to 30.95 per cent compared to June 2024. As of September 2024, Life Insurance Corporation of India (LIC) owns a 1.53 per cent stake in the company.
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Disclaimer: The article is for informational purposes only and not investment advice.