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SAMIL reported a soft Q2, with ~3%/14% EBITDA miss vs Consensus; margins declined by ~80bps QoQ to 8.6%. While the company continued to outperform global auto production on organic basis, outlook here is weakening/remains challenged across major markets. We believe premiumization-led growth in content per vehicle would continue for SAMIL, accompanied by a) better visibility in non-Autos (targets 25% sales contribution), particularly led by Consumer Electronics (SAMIL is undertaking Rs26bn capex), and b) optionality on M&A following the recent fund-raise. We lower FY25E/26E/27E EPS by ~10%/5%/3%, due to lower margins amid the miss in Q2 and cost pressures (build-in 14% consolidated revenue CAGR over FY24-27E). We maintain ADD and lower our SoTP-based TP to Rs190 (implied target Sep-26E PER of ~23x).

EBITDA miss vs Consensus; margin down by 80bps sequentially

Consolidated revenues grew 18% YoY to Rs278.1bn (~3% below estimates); EBITDA was 23% higher YoY, albeit ~14% below estimate – with EBITDA margin declining by ~80bps QoQ to ~8.8%, amid lower gross margins and higher other expenses. Revenue growth on YoY basis was driven by Modules and Polymers (up 27%), and Emerging Businesses (ie Non-Auto, up 43%); sequentially, margins were lower across Wiring Harnesses, Modules & Polymers, and Vision Systems. Adjusted PAT stood at Rs7.6bn, at an ~18% miss vs Consensus.

Earnings Call KTAs

1) Management highlighted continued outperformance vs the underlying industry, wherein organic revenue growth was 4-5% higher than the market (global light vehicle production down 5%), aided by new products and higher penetration in certain customers; expects H2 to be better than H1, amid typical seasonality (plant shutdowns in winter are shorter than in summer). 2) Global macros are a mixed bag; customer schedules have been erratic amid lower-than-expected EV offtake and elongated ICE visibility; while inflation and interest rates are stable, volatility in commodity (eg copper) and energy prices (in Europe) is rising. 3) Automotive booked business stands at USD88bn (vs USD84bn in Mar-24), executable over 5-6 years; EVs comprise ~24% of the orderbook. 4) As global pain increases, the company would be even better placed on the M&A front. 5) 5 of the 19 upcoming greenfields have come onstream, with 8 of the 14 to come onstream during H2. 4) Marginally lowered FY25 capex guidance to Rs50bn +/-5% vs Rs50bn +/-10% earlier. 6) Non-Auto revenues reached annualized run rate of Rs30bn, with Consumer Electronics (CE) yet to ramp up. Pilot plant for CE has cleared customer trials (for both, assembly and manufacturing operations); mass production to start in Nov-24; larger manufacturing plant in Chennai to come onstream in ~1.5 years. 7) Would be utilizing most of the Rs64bn fund raise done recently toward debt repayment; net debt stands at ~Rs105bn; current gearing at 1x vs 1.5x in Jun-24 and threshold of 2.5x. 8) Company has taken upfront cost increases; seasonal improvement in H2 schedules, along with ongoing discussions with customers for sharing of cost inflation, are also seen leading to better margins vs H1 levels.

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