Sona Comstar acquires Railway Equipment Division of Escorts Kubota Ltd at ₹1,600 crore

Gurugram, India (Metro Rail Today): Sona BLW Precision Forgings Ltd., commonly known as Sona Comstar, a global leader in mobility technology solutions, is poised to make a significant entry into the railways components sector. The company has finalized an agreement to acquire the Railway Equipment Division (RED) of Escorts Kubota Ltd. (EKL) for an enterprise value of ₹1,600 Crore (approximately USD 192 million), under a slump sale arrangement. This strategic move is set to enhance Sona Comstar's offerings in the rapidly evolving railway market.

The Railway Equipment Division of EKL is renowned for supplying critical components essential for railway operations, including advanced brake and suspension systems used across various rolling stock. In the fiscal year 2024, RED reported revenues of around ₹950 Crore and an EBIT of ₹179 Crore, reflecting its robust performance in the sector. Sona Comstar anticipates that this acquisition will be earnings accretive from the first year, presenting a wealth of growth opportunities.

Mr. Vivek Vikram Singh, Managing Director and Group CEO of Sona Comstar, expressed enthusiasm about the acquisition, stating, "We are delighted to step into the railways components sector. This acquisition aligns with our vision of expanding into the broader mobility sector and enhancing our clean mobility product offerings." He further emphasized that entering the railway industry not only opens up long-term growth potential but also enables Sona Comstar to incorporate advanced technology and engineered products into its portfolio.

The Indian Railways sector is a vibrant landscape characterized by extensive growth potential. Factors such as India's expansive railway network, rapid urbanization, and significant investment in rail infrastructure are driving an increasing demand for technologically advanced components. Additionally, as the most environmentally friendly mode of motorized transport, railways play a crucial role in India's commitment to achieving net-zero emissions.

Sona Comstar's entry into the railway components market aligns with its strategic goal of promoting clean mobility solutions. The acquisition of RED not only expands the company’s reach into a high-demand sector but also reinforces its commitment to sustainability.

Escorts Kubota's Railway Equipment Division brings over sixty years of experience in the railway component industry and is a trusted partner to Indian Railways and major private railway OEMs. With a stringent vendor approval process, the Indian Railways imposes high barriers to entry for new component suppliers, making RED's established reputation invaluable.

RED is a notable domestic player, distinguished by its Silver-grade International Railway Industry Standard (IRIS) certification for brake systems. The division operates a state-of-the-art 600,000-square-foot manufacturing facility located in the National Capital Region (Faridabad), where it designs, develops, assembles, and tests a diverse array of products.

RED boasts one of the most comprehensive product portfolios among railway component suppliers in India, including:

• Brakes and Couplers
• Suspension Systems
• Friction and Rubber Products

Moreover, RED has a promising pipeline of new products, such as HVAC systems, electrical control panels, vacuum evacuation systems, and automatic plug doors. Over the past five years, RED has demonstrated impressive growth, with revenue expanding at a 19% CAGR and EBIT at an 18% CAGR.

The acquisition is subject to customary closing conditions, including the necessary regulatory approvals. Sona Comstar has enlisted Ernst & Young LLP as its financial advisor for this transaction, while Shardul Amarchand Mangaldas & Co. serves as legal counsel and KPMG handles financial and tax diligence.

This acquisition marks a pivotal moment for Sona Comstar as it diversifies its portfolio and strengthens its position in the railways components sector. As India continues to invest in its rail infrastructure, Sona Comstar is well-positioned to capitalize on emerging opportunities while contributing to the country’s sustainable mobility goals.