Buy Samvardhana Motherson International Ltd for the Target Rs 190 by Emkay Global Financial Services Ltd
We met the management of SAMIL to understand the growth trajectory ahead. Its FY27 outlook is centered on diversifying across multiple fronts, with the 3CX10 strategy targeting no single country/customer/component contributing >10% to revenue. Growth rests on its core design, engineering, manufacturing, assembly, and logistics capabilities through 3 pillars:
1) organic wallet-share gains;
2) inorganic M&A; and
3) non-auto expansion, mainly into consumer electronics (CE) and aerospace. Management reiterated its focus on each pillar, with calibrated China exposure, scaling non-auto businesses, and disciplined capital allocation. China exposure is being managed deliberately (~10% of total revenue including from JVs, avoiding low-margin terms); tariffs and localization rules are reshaping supply chains, with Chinese OEMs expected to manufacture in Europe, which could create opportunities for SAMIL. CE and aerospace are scaling into meaningful growth engines and Honda-ecosystem acquisitions are widening the auto franchise, while India's revenue share continues to rise (~22% of total revenue including from JVs vs 19-20% 2 years ago; ~26% of total order book), all within a disciplined capital structure. New businesses (particularly CE) and renewed India focus (all new plants are in India/emerging markets) are expected to drive the next leg of growth (refer to Vision 2030: Consumer electronics a major lever for growth). We retain our FY26-29E revenue/EBITDA/EPS CAGR of ~15%/20%/28%. We reiterate BUY and raise TP by ~6% to Rs190 (from Rs180), at 23x Sep-28E PER (rolled forward).
Non-auto growth engines moving from emerging to material
CE, fully India-based and backed by a Rs75bn capex plan (1/3rd spent; balance to be deployed over next 2-3Y), delivered 7.5x revenue growth and turned EBITDA-positive in its first full year. Plant 3 of CE is ramping up and is expected to be commissioned by 3QFY27 (40mnpa units), taking total capacity to 56mnpa units. Aerospace (<2% of revenue) grew ~40% yoy in FY26 and now carries a $1.9bn order book, with management favoring M&A over slow organic growth to broaden the platform.
Calibrated China exposure amid a shifting trade landscape
SAMIL’s Chinese OEM exposure has grown from near-zero 5-6 years ago to ~10% of total revenue, including from JVs across 40+ plants, while it is deliberately avoiding lowmargin, cash-punishing contract terms common among local players. Potential EU tariffs and 70% localization rules are expected to push Chinese OEMs toward European manufacturing on terms comparable to those of an EU company, an opportunity which management welcomes.
Funding discipline behind the diversification
CE capex remains self-funded, while M&A will be financed through debt, consistent with FY26 discipline, where net debt/EBITDA hit an all-time low of 0.8x despite record capex and acquisitions, well below the stated 2.5x ceiling (internal target ~1.5x). Ten of the 13 greenfields are expected to come online in FY27, while SAMIL aims to make some of the new businesses independently funded. This funding separation, alongside India's rising revenue share (22%, up from 19–20% two years ago) and continued M&A, allows SAMIL to pursue all 3 pillars simultaneously without balance-sheet strain.
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