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Healthy beat; promising growth prospect in non-auto

Reduced gross debt of INR18b in 4QFY24 despite large M&A payouts

* Samvardhana Motherson (MOTHERSO) reported robust performance in 4QFY24 as EBITDA/PAT exceeded our estimates at INR26.7b/INR9.2b (est. INR24.9b/INR6.6b). Additionally, the management indicated that the P&L impact of the Yachio, Lumen, and ADI acquisitions will start reflecting in 1QFY25. These acquisitions are expected to contribute an additional INR144b in net revenues for FY25E.

* We increase our FY25E/FY26E EPS by 2%/5% to account for: i) significant growth potential in the coming years for its non-auto divisions, particularly aerospace and consumer electronics, and ii) improved margins. Consequently, we have raised our target multiple for MOTHERSO to 22x (previously 20x) and reiterate our BUY rating on the stock with a revised target price of INR170.

Acquired businesses contributed 10% to revenues/EBITDA in FY24

* Consolidated business performance: Consol revenues grew 19% YoY to INR268.6b (est. INR259.2b). Consol EBITDA grew 32% YoY to INR26.7b (est. INR24.9b) and consol adj. PAT grew 46% YoY to INR9.2b (est. INR6.6b). There was a one-time cost of INR4.97b pertaining to deferred tax assets, forex gains, etc. FY24 revenues/EBITDA/adj. PAT grew 25%/43%/63% YoY.

* Wiring harness business revenues rose 9% YoY to INR81.8b (est. INR79.8b) and EBITDA margins improved 160bp YoY to 11.1% (est. 6.8%).

* Modules & Polymer business revenues increased 13% YoY to INR137b (est. INR125.5b) and EBITDA margins improved 360bp YoY to 10.8% (est. 8.3%).

* Vision system revenues grew 10% YoY to INR50.4b (est. INR45b) and EBITDA margins declined 30bp YoY to 12.9% (est. 9.2%).

* Emerging business revenues grew 26% YoY to ~INR23b (est. INR23.5b) and EBITDA margins expanded 410bp YoY to 17% (est. 11.5%).

* Integrated assembles reported a revenue of INR23.85b (est. INR26.7b) and EBITDA margin of 12.8% (est. 11.3%).

* SAMIL has managed to reduce gross debt by INR18b in 4Q QoQ to INR103.7b.

* FCFF improved to INR35.6b (vs. INR24.6b in FY23) mainly due to improved operating cash flow, which stood at INR75.7b (vs. INR46.4B in FY23) despite higher capex of INR40b (vs. INR21.8b in FY23).

*  The company declared a final dividend of INR0.8/share for FY24 (vs. INR0.65/share in FY23).

Highlights from the management commentary

* Of the 25% revenue growth reported in FY24, 12.5% was organic growth. In FY24, INR101.3b revenue was added due to acquisitions (six months of Dr. Schneider and eight months of SAS), which contributed to INR9.15b in EBITDA.

* Its automotive booked business increased to USD83.9b (up from USD77.3b in 2QFY24 end). About 23% of this came from EVs. This does not include the order book of Yachio and the non-auto business.

* MOTHERSO has invested INR40b in FY24. The majority of growth capex is in emerging markets. The company is in the midst of setting up 18 greenfields (13 in India, 4 in China and 1 in Poland) in coming years. It plans to invest another INR50b in FY25, of which about INR20b would be in new greenfields. 70% of the capex is for greenfields in non-auto segments.

* All the announced acquisitions as of May’24 are closed, with the integration well on track. P&L impact for acquisitions of Yachio, Lumen and ADI will reflect in 1QFY25. These acquisitions are expected to add another INR144b in net revenues in FY25E.

Valuation and view

* Given its well-diversified presence across components, geographies and customers, MOTHERSO is emerging as the key beneficiary of the growing popularity of EVs and the rising trend of premiumization across segments. This is evident in a significant ramp-up in its order book, with its booked business scaling up to USD83.9b.

* The stock trades at reasonable valuations of 22.2x/18.2x FY25E/FY26E consolidated EPS. Our positive view on MOTHERSO remains intact based on the ramp-up of new businesses in non-auto, execution of a strong order book for SMRPBV and capacities in place for growth. We reiterate our BUY rating with a revised TP of INR170 based on 22x Mar’26E EPS.

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