Sona BLW shares zoom 10.5% on approving Rs 1,600 crore acquisition of Escorts Kubota’s railway equipment biz

Synopsis

Sona BLW Precision Forgings (Sona Comstar) is acquiring Escorts Kubota's Railway Equipment Division for Rs 1,600 crore on a slump sale basis. This strategic move aligns with Escorts Kubota’s focus on agriculture and construction sectors. The acquisition enhances Sona Comstar’s mobility offerings.

Shares of Sona BLW Precision Forgings (Sona Comstar) jumped 10.5% to an intraday high of Rs 709.80 after the company’s board approved the acquisition of Escorts Kubota's Railway Equipment Division for Rs 1,600 crore.

This acquisition will take place on a slump sale basis, meaning Sona BLW will acquire the division as a going concern without taking any shareholding or control in Escorts Kubota.

Escorts Kubota's railway business reported revenue of Rs 950 crore for FY24 and contributed 11% to the company's topline in the June quarter. The sale aligns with Escorts Kubota's strategic focus on the agriculture and construction equipment sectors.

"This strategic shift is aimed at simplifying operations, capital reallocation leading to an increase in scale and efficiency of the core businesses. By aligning with the vision of the parent i.e. Kubota Corporation, EKL is positioning itself for sustainable growth and driving innovation in its core businesses," the company said.

EKL Chairman and MD, Nikhil Nanda, said, "With a renewed focus on core business divisions, EKL aims to maximize value for stakeholders and solidify its position as a leading player in the agriculture and construction equipment industry."

Escorts Kubota's Railway Equipment Division supplies key railway components, including brakes, couplers, suspension systems, and friction and rubber products. The division is also developing new products such as HVAC systems, electrical control panels, vacuum evacuation systems, and automatic plug doors.

The acquisition aligns with Sona Comstar’s goal of expanding into the broader mobility sector and will enhance its clean mobility product offerings by adding railway components to its portfolio.

Following this acquisition, CLSA upgraded Sona BLW to 'Outperform' from 'Hold,' raising the target price to Rs 712 from Rs 690.

The company's operating performance is in line with expectations, and the acquisition of Escorts Kubota's railway business is expected to drive profitable growth. However, a potential slowdown in Sona BLW’s core business may necessitate inorganic growth, with revenue from the railway equipment business projected to start contributing meaningfully from FY26.

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