The IPO season is in full swing and a new company is all set to list its shares on the bourses. Sona Comstar, an auto component manufacturer, has received approval from the market regulator SEBI to raise Rs 6,000 crore via an initial share sale.
The IPO will see the company raising funds by fresh issue of shares amounting to Rs 300 crore along with an offer for sale of shares amounting to Rs 5,700 crore by selling shareholder Singapore VII Topco III Pte Ltd. The company, as per the draft red herring prospectus, is an affiliate of the Blackstone Group Inc.
Sona Comstar, which was originally incorporated as Sona Okegawa precision forgings limited at New Delhi in 1995, filed its preliminary IPO documents back in February this year and was given an observation by SEBI earlier this month. In the absence of observation by SEBI, no company in India can kick off a public issue such as an initial public offer or a follow-on public offer or for that matter, a rights issue.
The company plans to use the raised funds towards repaying Rs 225 crore of its market borrowings. It will also use some part of these funds raised towards other general corporate activities.
The core competency of the company
According to the draft red herring prospectus, the company claims to be one of India’s “leading automotive technology companies, designing, manufacturing and supplying highly engineered, mission-critical automotive systems and components such as differential assemblies, differential gears, conventional and micro-hybrid starter motors, BSG systems, EV traction motors (BLDC and PMSM) and motor control units to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments”
The company has nine manufacturing and assembly units which are located in facilities across India, China, Mexico and the USA.
The company also claims to be a technology and innovation-driven company with a strong focus on research and development along with the development of mechanical and electrical hardware systems, components as well as base and application software solutions.
Sona Comstar is also one of the two largest exporters of starter motors from India. It also has the largest market share when it comes to manufacturing differential gears for commercial and passenger vehicles in the country.
Its list of OEM clients across the globe includes Ashok Leyland, Escorts, Daimler, Mahindra & Mahindra, Maruti Suzuki, Mahindra Electric, Volvo and Volvo Eicher and Renault Nissan.
Risk factors outlined in the preliminary IPO papers
The draft red herring prospectus indicates that the business of the company is dependent on the performance of the automotive sector globally, including in key markets such as the US, Europe, India and China. “Any adverse changes in the conditions affecting these markets can adversely impact our business, results of operations and financial condition.” states the preliminary IPO papers.
Another risk factor outlined by the company states that the company’s business largely depends upon their top ten customers and the loss of such customers or a significant reduction in purchases by such customers will have a significantly adverse impact on their business.
“The discontinuation or loss of business with respect to, or a lack of commercial success of, a particular vehicle model for which we are a significant supplier could adversely affect our business and results of operations.” says the draft red herring prospectus.
In terms of the impact of Covid-19 on its operations, the company has disclosed that in the fiscal year 2020 and in the period thereafter during which the manufacturing facilities of the company were shut down, the company experienced “overall low consumer demand in the automotive markets, and consequently low orders” from their customers for their systems and components.
The book running lead managers for the issue are Kotak Mahindra Capital Company, JP Morgan India, Credit Suisse Securities, JM Financial and Nomura Financial Advisory and Securities.