Buy Samvardhana Motherson International Ltd For Target Rs.93 - Yes Securities
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Healthy order wins to speed up earnings
Valuation and View
Samvardhana Motherson (MOTHERSON) 2QFY23 reported a healthy beat of 25%/22% at EBITDA to out/street estimates. Such a strong beat was driven by higher than expected QoQ ramp?up across business, especially SMR where revenue grew 16% (v/s 4% at SMP). This was led by recovery in volumes from North America and Chinese markets where SMR do have large market share with organized OEMs. Also at co level, contribution of premium variants went in Europe/NA from 26%/14% to 28%/18% in 2QFY23 also contributed towards margins. Co continues to gain strong traction in EVs with its share in consol revenues at >5% in 1HFY23 (v/s >4% in 4QFY22). SMRP BV orderbook came in healthy at EUR18.2b (up from EUR16.1b as on Mar’22) with share of EV is now at 37% (v/s 27% in Mar’22). New orders won in 1HFY23 at EUR4.9b. Total booked business as of Sep’22 stands at EUR33.9b.
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 ~11%/27% 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 maintain FY23 EPS while upgrade FY24 EPS by 7% to factor in execution of higher content EV orders. Maintain BUY with revised TP of Rs93 (earlier Rs85, 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?Significant beat at EBITDA to our and street estimates
* Consol revenues grew 3.7% QoQ (+30% YoY) at Rs182.6b (est Rs177b). There was sequential revenue growth in Wiring Harness/Vision system/Modules & Polyster Products/Emerging Business by 5%/13%/4%/8% on QoQ basis.
* Gross margins expanded 130bp QoQ at 42.5% (in?line). Led by better operating leverage, EBITDA grew 30% QoQ to Rs14b (est Rs11.5) with ~160bp QoQ margins expansion (+100bp YoY) at 7.7%.
* This coupled with lower tax rate at 30% (est 40%), drive Adj.PAT beat at Rs3b (120% QoQ, est Rs2b). Consol net debt increased to Rs85.5b as of Sep’22 (v/s Rs82.3b in Mar’22) led by inflated working capital.
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