Buy Samvardhana Motherson Ltd For Target Rs.160 by Motilal Oswal Financial Services Ltd
Business remains resilient despite weak macro
Non-auto likely to be the key growth driver in the near term
* Samvardhana Motherson’s (MOTHERSO) 3QFY25 operational performance was in line with our estimates. Despite a tough global macro environment, the business remained resilient as margins improved 70bp YoY. Factoring in weak demand in key regions, we have lowered our FY26E EPS by 15% and largely maintained our FY25E EPS.
* The stock has corrected over the last few months given an uncertain demand macro in its key regions. However, strong 3Q performance demonstrates SAMIL’s business resilience and should allay investor concerns. After the correction, SAMIL is attractively valued at 21.3x FY26E/18x FY27E consolidated EPS. Reiterate our BUY rating with a revised TP of INR160, based on 24x Dec’26E EPS
Resilient business performance in a weak macro
* Consol revenues grew 8% YoY to INR276.7b (est INR289b). Consol EBITDA grew 16% YoY to INR26.9b (est. INR26.5b) and consol adj. PAT grew 20% YoY to INR8.8b (est INR7.9b). 9MFY25 revenue/EBITDA/PAT grew ~18%/27%/ 64% YoY.
* Wiring harness business declined by ~1% YoY to INR78.3b (est. INR84.6b) and EBITDA margins improved 100bp YoY (+60bp QoQ) to 11.8% (est. 11.1%). Revenue remained largely stable despite demand-related challenges in the CV industry, especially in Europe and North America.
* Modules & Polymer business revenue grew 15% YoY to INR146.1b (est INR149.7b) and EBITDA margins declined 80bp YoY/60bp QoQ to 8% (est. 8.7%). While new businesses added to the size, the existing businesses continued to show content growth, driven by automotive megatrends.
* Vision system business revenue declined 2% YoY to INR47.3b (est. INR51.4b) and EBITDA margins declined 50bp YoY (flat QoQ) to 9.2% (est. 9.9%). Revenue growth remained muted on account of an unfavorable platform/ model mix in North America, which offset growth in China and other geographies.
* Integrated assemblies business revenue grew ~3% YoY to INR26.6b. Margins improved to 13.3% (+85bp YoY/140bp QoQ) to 13.3% (est. 12.3%). Three Greenfield plants are being set up in emerging markets (China and Mexico) to support new and existing customers.
* Emerging business grew 18% YoY to ~INR26.9b (est INR31.3b) and EBITDA margins expanded 90bp YoY (+110bps QoQ) to 13.3% (est. 14%).
* Net debt declined to INR95b from INR105b QoQ. The company incurred a capex of INR8.91b (~32% of EBITDA) in 3Q and INR29.2b in 9MFY25.
Highlights from the management commentary
* Consolidated revenue growth included INR22.4b from acquisitions, such as Yachiyo, ADI, Lumen, Irillic, and MASL in 3QFY25.
* SAMIL outperforms industry: Global auto was down 1.2% YoY (excl. China down 4.8%), though SAMIL grew 7.5% with 10% EBITDA margin. SAMIL’s operational performance was impressive despite a weak demand macro.
* Financial performance and capital allocation: Net debt declined to INR95b (from INR105b) with the help of QIP proceeds. The net debt-to-EBITDA ratio was below 1x as of Dec’24 end. The full benefits of reduced interest burden will be visible from Q4 onward. Easing logistics will help to lower working capital from Q4 onward and further reduce debt.
* Update on Atsumitec acquisition: MOTHERSO has recently announced the acquisition of Atsumitec, a company with global machining and high value addition (USD412m in revenue in FY24). This will further help SAMIL increase its presence among Japanese OEMs. This acquisition is expected to close by Mar’25, with revenue contribution starting from 1QFY26.
Valuation and view
* We expect MOTHERSO to continue to outperform global automobile sales, fueled by rising premiumization and EV transition, a robust order backlog in autos and non-autos, and successful integration of recent acquisitions.
* However, factoring in the demand slowdown in key regions, we have lowered our FY26E EPS by ~15% and largely maintained FY25E EPS. The stock has corrected over the last few months as investors remain concerned about the ongoing slowdown in some of its key regions and uncertainty around tariff barriers that may impact global business dynamics. However, the strong 3Q performance demonstrates SAMIL’s business resilience and should help allay these concerns. After the correction, SAMIL is attractively valued at 21.3x/18x FY26E/FY27E consolidated EPS. We reiterate our BUY rating with a revised TP of INR160, based on 24x Dec’26E EPS.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
