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View – Structurally well placed; Global LV production moderate further

Samvardhana Motherson (MOTHERSON) 2QFY25 missed our/street EBITDA estimates by ~11%/14%, led by weak revenue print (~4% miss) due to moderating global LV demand coincided with low production activity due to summer holidays. Weak gross margins at 45.8% (est 46.4%-60bp QoQ) led consol margins at 8.8% (+40bp YoY/ -80bp QoQ, est 9.5%). Underlying revenue growth of ~18% YoY in 2QFY25 was led by combination of organic and inorganic (~Rs62b contribution in 2Q vs Rs18.5b in YoY), significantly outpacing ~5% decline in global light vehicle (LV) volumes. All the sub segments grew by low single to double digit led by combination of content increase and integration of acquisitions such as Yachiyo, Ichikoh, AD industries and Dr. Schneider etc. among key ones. However, co did indicated challenges such as, 1) soft production expected in Europe (LV and CV) and NA (CV) and delay in EV launches in Europe impacting production (negated by extended life

We believe, meaningful contribution from recent acquisitions have started to kick in which should drive revenue/EBITDA/Adj.PAT CAGR of 12.7%/17.5%/29.3% over FY24-27E and cushion near-term challenges in organic business. Margins are likely to expand to ~10.6% by FY27E (v/s 7.9% in FY23 and 9.4% in FY24) led by ready capacity to execute healthy orders. Led by weak global light vehicles (LV) growth outlook and resultant impact on margins, we cut FY26/FY27 EPS by 5-6%. Maintain BUY with revised TP of Rs199 (earlier Rs208), valuing co at 25x FY27 consol EPS (unchanged). MOTHERSO trades at 25.4x/20.8x FY26/27 consol EPS.

Result Highlights – Weak revenues drive EBITDA miss

* Consol revenues grew 18.2% YoY (-3.7% QoQ) at Rs278.1b (est Rs289.9b). Segmentally, WH revenues grew 4.1% YoY, Module +27.4% YoY, Vision at +2.5% YoY and emerging business grew 43.4% in INR terms. This is against ~5% degrowth in global LV with the ~6%/7% decline in NA/Europe.

* Consol EBITDA grew 23.1% YoY/-11.8% QoQ to ~Rs24.5b (est at Rs27.4b) led by 250bp YoY (-60bp QoQ) expansion in gross margins at 45.8% (est 46.4%). Consequently, margins expanded 40bp YoY (-80bp QoQ) at 8.8% (est 9.5%).

* EBIT margins of key business – WH at 11.2% (vs 10.6% YoY), SMP at 7.4% (vs 7.1% YoY/), SMR at 9.2% (vs 9.2% YoY), emerging biz at 13.3% (vs 12.4% YoY).

* Adj. PAT grew 1.7x YoY (-11.5% QoQ) at ~Rs8.94b (est ~Rs9.6b). Consol net debt at Rs104.9b as of 2QFY25 (vs Rs133b in June’24, Rs103.7b in Mar’24). Capex spends at Rs9.46b/Rs20.24b in 2QFY25/1HFY25 (v/s Rs40b in FY24)

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