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Inorganic acquisitions coming to fruition

Stellar margin performance     

Samvardhana Motherson International’s (MOTHERSO IN) Q3 EBITDA rose 47% YoY/26% QoQ to INR 23.7bn, with EBITDA margin at 9.2% (+125bp YoY/+120bp QoQ). EBITDA, adjusted for one-off expense from hyperinflationary environment in Argentina, was 9.5%. Consolidated revenue rose 27% YoY/10% QoQ to INR 256.9bn. Ex-hyperinflationary impact, adjusted PAT was INR 7.33bn (+161% YoY/QoQ).

Wiring harness revenue rose 21% YoY/2% QoQ to INR 79.3bn, led by PKC demand. Modules and polymer products revenue rose 16% YoY/11% QoQ to INR 127.5bn, driven by SMP. Vision Systems revenue spiked 6% YoY/3% QoQ to INR 48.1bn. SMRPBV’s margin rose 190bps QoQ to 8.4%, and gross margins 220bps QoQ with softening commodity prices. Other expenses/sales dipped 10bps QoQ, on stabilization of energy costs at 2% of revenue.

New acquisitions to be integrated from FY25

Yachiyo, Cirma Enterprise, Lumen Group and ADI Group are the key acquisitions that are yet to be completed and may contribute to incremental revenue of USD 1.1-1.2bn revenue from FY25. The Red Sea issue has had no major impact as production lines are in the same geography as customers. Net debt declined by INR 8.66bn to INR 125.5bn in Q3, despite M&A payouts for acquisitions of Dr Schneider, Deltacarb and SMAST of INR 7.5bn in Q3. Total M&A payout (net of cash) was ~INR 45.5bn in past three quarters. FY24 capex guidance was maintained at INR 45bn, with 11 new greenfield facilities in FY25/26.       

Valuations: Reiterate Buy; TP increased TP to INR 141

Hyperinflationary environment in Argentina temporarily hit operations and profitability. We factor in higher consolidated EBITDA margin of 9.5%/10% in FY25E/26E on operating leverage benefit from integration of inorganic acquisitions. We have yet to factor in the upcoming acquisitions of Yachiyo, Cirma Enterprise, Lumen Group and ADI Group, which may contribute further ~10% to the topline. SAMIL continues to score high on our LACE mega-trends framework of evaluating auto ancillaries as highlighted in our recent thematic. We reiterate Buy with a higher TP of INR 141 from INR 131, on 18x FY26E P/E.

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