Sona BLW Precision Forgings Ltd. (Sona Comstar), a leading provider of global mobility technology solutions, has signed an agreement to acquire the Railway Equipment Division (RED) of Escorts Kubota Ltd. (EKL) for INR 1,600 crore. The acquisition marks Sona Comstar’s entry into the railway components sector and is expected to be a significant value addition to its business.
Details of the Acquisition:
The acquisition will be executed as a slump sale, with RED being acquired as a going concern. RED, a prominent supplier of railway components, generated revenue of INR 950 crore in FY24 and achieved an EBIT of INR 179 crore. The acquisition is expected to be earnings accretive for Sona Comstar from the first year of operation.
Strategic Significance:
- Sona Comstar’s entry into the Indian Railways components market presents strong growth prospects, driven by India’s expanding railway infrastructure, rapid urbanisation, and increased investment in the sector.
- The deal aligns with Sona Comstar’s focus on clean mobility, as the railways play a vital role in reducing carbon emissions and advancing India’s net-zero goals.
MD Stated:
Mr. Vivek Vikram Singh, MD & Group CEO of Sona Comstar, said: “We are delighted to step into the railways components sector with the signing of the agreement to acquire the Railway Equipment Division of EKL. The proposed acquisition of the 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. 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.
RED’s Market Position and Expertise:
- With over 60 years of industry experience, RED has long been a trusted partner to Indian Railways and private OEMs.
- It is one of the few companies in India with multiple products approved by Indian Railways and the only domestic player with Silver-grade IRIS certification for brake systems.
- RED operates a 600,000-square-foot facility in Faridabad, specialising in designing, developing, and testing a variety of critical railway components.
Growth Potential:
- RED has a strong pipeline of new products, including HVAC systems, electrical control panels, vacuum evacuation systems, and automatic plug doors.
- The company’s extensive product portfolio includes brakes, couplers, suspension systems, and friction and rubber products, positioning it as a market leader in India.
- RED has shown impressive growth, with revenue increasing at a CAGR of 19% and EBIT growing at a CAGR of 18% over the past five years.
Conclusion:
Sona Comstar’s acquisition of Escorts Kubota’s Railway Equipment Division positions the company for substantial growth in the Indian railway components sector. This move not only broadens its product portfolio but also supports India’s efforts towards sustainable and clean mobility, marking a milestone in Sona Comstar’s strategic growth.
Source: Sona Comstar – Press Release | Image Credit (representational): Escorts Kubota Ltd.