Synopsis: Sona BLW’s sharp stock fall has been driven by slower growth, temporary margin pressure, supply chain disruptions and cautious forecasting. While recent quarters have tested investor confidence, management actions on cost control, product diversification and EV and hybrid programs indicate that the current stress is more short term, with the long-term growth story largely intact.
Sona BLW has seen its stock slide close to 40 percent from its highs, as a mix of softer growth, margin pressures and near-term execution challenges has unsettled investors who were once confident about its long-term EV-led story, raising the question of whether this sharp correction reflects temporary turbulence or a more fundamental reset in expectations?
What Went Wrong
Sona Comstar’s performance in Q2 FY26 must be viewed in the context of challenges that began in Q1, which management described as, one of the worst quarters, even from a business performance perspective and the company’s weakest quarter since its IPO.
A combination of temporary operational, market, and financial factors created near-term headwinds that moderated revenue growth and EBITDA margins, even as the company’s long-term fundamentals remain intact.
Supply Term Changes with European EV Customers
One of the primary factors impacting performance was a change in supply terms with a major European EV customer. Revenue recognition previously occurred under Ex-works terms but shifted to delivery to customer terms, adding approximately 60 days of delay in recognizing revenue. This pushed a portion of what would have been Q1 revenue into Q2.
While this did not represent a loss of revenue or impact cash flow, it temporarily moderated reported performance and highlighted the sensitivity of quarterly results to contractual adjustments with high-value customers.
Decline in Sales Volumes from Large Global Customers
The slowdown in one large global EV customer also weighed on results. Weak demand trends at the customer level led to reduced procurement, affecting core automotive segments. Traction motors and other key products outside the railway business posted 5 percent year-on-year growth in Q2FY26, recovering from a 10 percent decline in Q1FY26, showing that revenue growth, while improving, remained under pressure.
Management emphasised that as “pressure comes on traditional product because if your existing customers don’t sell enough vehicles, you have to start also making new things for either existing customers or new customers,” indicating ongoing efforts to diversify product offerings to offset slowdowns in legacy segments.
Material Shortages and Supply Chain Disruptions
External supply chain shocks further compounded challenges. Since April 8th, 2025, China banned heavy rare earth magnets to India, disrupting EV traction motor production. Sona Comstar responded by pivoting to light rare earth magnets, and subsequently to ferrite-assisted synchronous motors within three months.
While the transition showcased operational agility, it temporarily impacted production timelines and cost efficiency. Additional macro pressures, including frequent US tariff changes, prompted OEMs and tier 1 suppliers to maintain low inventories, slowing procurement and order flow in the short term.
Margin Pressures Due to Business Mix and Integration
Margins were affected by structural changes in revenue composition, particularly the integration of the railway business, now contributing 20 percent of revenue. Lower EBITDA levels in railways diluted consolidated margins from 26-27 percent in core automotive segments to 24-25 percent in Q2.
Management clarified that this is a mathematical shift, not an operational inefficiency. High-margin segments like EVs and hybrids continued to face external pressures, reinforcing that revenue mix adjustments can materially affect reported margins in the short term.
Product Development and Technical Challenges
Development and innovation pressures also played a role. Ferrite-assisted synchronous reluctance motors, though successfully developed, initially had disadvantages such as higher weight and slightly lower power density compared to rare earth-based alternatives.
Hybrid motors, which offer the highest value content per vehicle, depend on market adoption to significantly contribute to revenue and margins. Additionally, die life improvements, process optimisations, and continuous reduction of material usage and processing time are ongoing efforts that take time to reflect fully in quarterly results.
Order Book Visibility and Prudence in Forecasting
Management adjusted the order book by Rs. 2,600 crores due to low visibility in certain programs. While such actions can create the appearance of lower near-term growth, they reflect disciplined revenue recognition and prudence in forecasting amidst structural uncertainties in ICE, hybrid, and EV programs. Exceptional events in automotive demand disrupted predictable order flows, necessitating careful recalibration of projected revenue streams.
Financial Metrics and Market Valuation Pressure
Financial factors also contributed to the moderation in performance. The company’s PE ratio, which peaked at 200.8x, has been correcting and currently stands at 47.5x, reflecting normalization after a period of high market expectations. Sales growth, which soared at 51 percent in 2021, has been on a downward trajectory, falling to 11.34 percent in 2025, though Q2 FY26 showed signs of revival with 23.43 percent sales growth, recovering from negative growth in Q4 FY25 and Q1 FY26.
Similarly, PAT growth has been inconsistent, but Q2 FY26 saw a notable rebound with 18 percent year-on-year growth and 39 percent quarter-on-quarter growth, signalling early signs of financial recovery. These metrics indicate that while past growth rates were unsustainable, the company is regaining momentum in key operational and financial indicators.
Are These Issues Temporary?
While Q2 FY26 presented challenges for Sona Comstar, several structural and strategic factors indicate that these issues are largely manageable and may be temporary. The company is actively implementing initiatives across cost management, process optimisation, and product development to drive sustainable growth.
Continuous Cost Optimisation and Process Innovation
At the heart of Sona Comstar’s strategy is a relentless focus on improving operational efficiency. Vivek Vikram Singh described the company’s philosophy, noting that every process has “some room to improve,” and that teams are continually working to “use less material, use less time, use less machines” across products. An example is the die life improvement in the forging process, which over more than a year allowed the company to enhance quality while reducing costs. Similarly, process improvements in motors have optimised material usage and production time, ensuring that margins remain resilient even amid external pressures.
This disciplined, in-house approach to efficiency distinguishes Sona Comstar from companies that rely on short-term cost-cutting measures such as workforce reduction or plant shutdowns. It demonstrates a sustainable pathway to margin recovery and positions the company to withstand market volatility.
EV and Hybrid Programs as Growth Drivers
EV and hybrid products continue to form a key pillar for future growth. Hybrid motors now account for 24 percent of automotive revenue, offering the highest value content per vehicle due to their integration of starter motors, traction motors, and high-torque differential assemblies. While traditional ICE engines remain lower margin, hybrids are positioned to provide both revenue growth and margin improvement as adoption rises.
Moreover, the company’s ability to pivot to ferrite-assisted synchronous reluctance motors within three months of heavy rare earth bans demonstrates resilience and speed in responding to supply chain disruptions. Technological refinements have largely mitigated disadvantages such as higher weight, enabling comparable performance across two-wheelers, three-wheelers, LCVs, and passenger vehicles.
Long-Term Opportunities in Robotics and Mobility
Sona Comstar’s investments in humanoid robotics, cobots, and industrial robots represent long-term growth opportunities. While revenue contribution from these segments will be negligible over the next 3-4 years, the company is laying the groundwork for a substantial future business. Vivek Vikram Singh emphasised that the first 5 years in such nascent segments primarily involve capability-building and learning, with significant revenue potential emerging over a 5-10 year horizon.
This long-term approach mirrors the company’s experience with EV drivetrains, where investments from 2016 began yielding meaningful revenue only in 2021. Similarly, suspension motors, which started development in 2021, are expected to contribute meaningfully to revenue only by FY28-30. Such strategic patience underscores that short-term challenges do not undermine the company’s long-term growth trajectory.
Expansion Across Product Categories
Finally, the company is actively broadening its product mix. The “Others” category now represents 9 percent of revenue, reflecting the introduction of new gears, driveline parts, and other automotive components. By diversifying product offerings, Sona Comstar is reducing reliance on legacy high-revenue segments, mitigating the impact of temporary demand fluctuations.
Management’s focus on sustainable cost improvement, process optimisation, and product innovation, coupled with structural diversification across EVs, hybrids, and other mobility solutions, suggests that current operational and market pressures are largely temporary. As these initiatives mature, the company is positioned not only to restore growth but also to strengthen long-term profitability and resilience.
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