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Healthy execution drive outperformance

Valuation and View

Samvardhana Motherson (MOTHERSON) 3QFY23 reported a healthy beat of 14%/10% at revenue/EBITDA to our estimates. The underlying industry growth volumes for global light vehicles segment were at flat YoY (v/s co’s revenues grew 11% QoQ). This was led by growth across business segments such as especially in SMR/SMP where revenues grew at 7.7%/8.4% QoQ in Euro terms. Further, new order wins in emerging business such as lightings, elastomers and modules should aid to the growth in base business. Co continues to gain strong traction in EVs with its share in consol revenues at >6% (v/s >5% in 1HFY23 and >4% in 4QFY22). The management indicated continued strong traction on SMRP BV orderbook even in 3QFY23 which came in healthy at EUR18.2b (up from EUR16.1b as on Mar’22).

The management hinted no signs of demand moderation especially in premium car segment bode well for SAMIL as normalization of production would not only help expand margins but also ease in WC, which would result in overall net debt decline. We therefore, build in revenue/EBITDA CAGR of ~12.3%/29% over FY22?25E. Moreover, margins are likely to expand to ~10.6% by FY25E (v/s 7% in FY22) led by ready capacity to execute healthy orders. We upgrade FY24/FY25 EPS by 4?4.5% to factor in for higher revenue execution. Maintain BUY with revised TP of Rs96 (earlier Rs93, based on 27x, Sep?24 EPS). Our estimates do not factor any inorganic?led growth, which is critical for Motherson group’s outlined ambition of USD36b sales by 2025.  

Result Highlights? Healthy execution; 3Q revenue at record high

* Consol revenues grew 10.8% QoQ (+25.5% YoY) at record Rs202.3b (est Rs177.5b). This was led by growth across sub segments especially in SMR/SMP where revenues grew at 7.7%/8.4% QoQ in Euro terms.

* Gross margins expanded 170bp QoQ at 43% (est 42.5%, +140bp YoY). Led by better operating leverage, EBITDA grew 12% QoQ to Rs15.8b (est Rs14.3) with ~10bp QoQ margins expansion (+110bp YoY) at 7.8%. Decline in RM as well as energy prices (Europe energy prices have declined to USD36.9/MMBTU in Dec’22 v/s USD60.2/MMBTU in Sep’22) to further support margins ahead.

* This coupled with lower tax rate at 29.6% (est 37%), drive Adj.PAT beat at Rs4.5b (+47% QoQ, est Rs3.5b). Consol net debt declined to Rs84.4b (v/s Rs85.5b as of Sep’22). 9MFY23 revenue/EBITDA/Adj.PAT grew 21%/25%/1.3x.

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