Sona Comstar will buy a 54% stake in the Serbian company NOVELIC; the stock increases by 9%

The shares of Sona BLW precision forgings ( Sona Comstar ) increased by 9 percent in the intraday after the company proclaimed that they have signed an agreement with serbia based Novelic to acquire 54% stake in Novelic 

Sona Comstar enjoys the positioning of one of the world’s leading providers of automotive technology solutions. The business is a market leader in the world’s rapidly expanding Electric Vehicle (EV) market meanwhile novelic is a leading provider of mmWave radar sensors, perception solutions and full-stack embedded systems

The deal is all set to commence and Sona Comstar is about to pay 40.5 million euros to Novelic to acquire a 54% equity stake in the entity. The purchase will be commenced through a combination of primary and secondary purchases with a staggered payment structure in the ratio of 60:20:20 at closing,1 year and 2 years respectively. The deal is expected to be finished by Q3 of FY23 and is subject to the usual closing requirements. 

The acquisition is expected to increase the earnings per share (eps) of sona Comstar for the starting years and is likely to offer stable growth through midterms.

Novelic annual revenue and profit after tax stand at euro 9.3 million and euro 2.5 million, respectively and the cherry on top is that the company remained profitable since its inception of it. 

In order to address the megatrends of increasing vehicle autonomy and automation, Sona Comstar has begun developing its third business vertical of ADAS Sensors and Software with the acquisition of Novelic. In the $43 billion ADAS Sensors market, NOVELIC is one of the extremely few profitable, high-tech, and rapidly expanding businesses. Its unique state-of-the-art mmWave tech is the best in the class for in-cabin sensing.

Even though this acquisition seems like a good play by Sona Comstar, the company has been consistently underperforming in the market for the past six months. The stock has fallen 20% as compared to an 11% increase in the BSE. The stock have downed by a staggering 38% as compared to 0.18 % decline in the index.