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Key global business continues to deliver

Valuation and View

Samvardhana Motherson (MOTHERSON) 1QFY24 performance continue to be healthy as reflected in the healthy revenue growth of 25.5% YoY at Rs224.6b (mostly organic as share of recent acquisition was Rs260m). The underlying industry growth volumes for global light vehicles segment grew ~16% YoY in 1QFY24. This was led by growth across business segments such as wiring harness revenues grew 25% YoY, SMP +27% and SMR at +32% YoY. Co continues to gain strong traction in EVs with its share in consol revenues (Rs16b in 1QFY24 vs Rs49b in FY23) remained at >7% in 1QFY24 (v/s >7% in 4QFY23 and 4-5% in FY23). The share of EVs on the other hand stood at 39% in 4Q (v/s 37% in Sep’22), indicating sharp increase in EV revenues.

The management hinted towards normalization of auto production (due to ease in chips supply) bode well for SAMIL as it would not only help expand margins but also ease in WC, which would result in overall net debt decline. The management indicated meaningful contribution from recent acquisitions to kick in such as SAS and Ichikoh from 2QFY24. We therefore, build in revenue/EBITDA/PAT CAGR of 13%/31%/59% over FY23-25E. Moreover, margins are likely to expand to ~10.7% by FY25E (v/s 7.9% in FY23) led by ready capacity to execute healthy orders. We upgrade FY24/FY25 EPS by 10.5-13% to factor steady increase revenues. Maintain BUY with revised TP of Rs121 (earlier Rs110), valuing co at 21x FY25 consol EPS (unchanged).

Result Highlights – Revenue share of EVs to rise gradually

* Consol revenues were flat QoQ (+27.5% YoY) at Rs224.6b (est Rs238b, cons Rs224.5b). Segmentally, wiring harness revenues grew 25% YoY, SMP +27% and SMR at +32% YoY. EVs revenue has increased Rs 16b in 1QFY24 (FY23 EV revenue was at ~Rs49b) accounting for ~7.2% of consol revenues.

* Consol EBITDA grew ~78.7% YoY/ -4.7% QoQ to Rs19.2b (est at Rs21b, cons at Rs18.9b) led by 240bp YoY expansion in gross margins at 43.5% (est at 43%). Consequently, margins expanded 250bp YoY at 8.6% (est 8.9%, cons at 8.5%).

* EBITDA margins of key business – WH at 10.2% (v/s 7.9% YoY/ 9.6% QoQ), SMP at 7.5% (vs 5.1% YoY, 7.2% QoQ), SMR at 9.4% (vs 8.4% YoY/ 12.2% QoQ), Other biz at 11.3% (vs 10.9% YoY). Adj. PAT grew 3x YoY at Rs6b (est Rs7b, cons Rs5.8b).

* Consol net debt as of 1QFY24 at Rs83.1b (vs Rs74.7b in FY23) due to accumulation of engineering Inventory for programs yet to start commercial production and payouts for acquisitions during Q1. Capex in 1QFY24 at Rs7.67b (v/s Rs7.33b in 4Q and Rs3.56b YoY).

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