Shares of Sona BLW Precision Forgings rose as much as 10% in opening trade to hit a high of ₹706.20 on the BSE after the automobile parts maker entered into an agreement with Escorts Kubota to acquire its Railway Equipment Division on a slump sale basis for an enterprise value of ₹1,600 crore.
Escorts’ railway business supplies critical components for Railways, such as brakes and suspension systems for various rolling stocks. The unit reported revenue of around ₹950 crore and earnings before interest and taxes of ₹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 Gurugram-based auto parts component maker says in a statement.
"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,” says Vivek Vikram Singh, managing director and Group CEO of Sona Comstar.
"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," says Singh.
The Indian Railways market presents a compelling opportunity, driven by several long-term growth factors and significant entry barriers, according to Sona Comstar. India's extensive railway network, rapid urbanisation, and increasing investment in rail infrastructure are likely to drive demand for technologically advanced and engineered components, the auto component producer says.
“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 not only enters the railway component market but also contributes to greener mobility solutions,” it says.
Indian Railways imposes high barriers to entry for component suppliers due to a strict vendor approval process. Escorts’ railway division 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 the only domestic player of scale in India 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.
Escorts’ Railway Equipment Division makes brakes, couplers, suspension systems, and friction and rubber products. Its pipeline of new products, which includes HVAC systems, electrical control panels, vacuum evacuation systems, and automatic plug doors. Over the last five years, the business has grown revenue at 19% CAGR.
Sona Comstar achieved its highest-ever quarterly revenue, operating profit, and battery electric vehicle revenue in Q2 FY25. Its revenue grew 17% year-on-year to ₹925 crore in the September quarter, driven mainly by the scale-up of the EV programmes. Its BEV revenue grew 53% y-o-y, contributing 36% to overall revenue. Profit grew 16% year-on-year to ₹144 crore.
