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Inorganic levers to cushion moderating volumes

View – Structurally well placed yet global LV start to moderate

Samvardhana Motherson (MOTHERSON) 1QFY25 exceeded our EBITDA estimates by ~7% (in-line to street), led by steady margins across verticals (adjusted for one-offs of Rs2.7b reported in 4QFY24). This led to reported consol margins at 9.6% (+100bp YoY/ -120bp QoQ, est 9.4%). Underlying revenue growth of ~28.5% YoY in 1QFY25 was led by combination of organic and inorganic (Rs62.5b contribution in 1Q vs Rs280.5b in FY24), significantly outpacing flat global light vehicle (LV) volumes. All the sub segments grew by high single to healthy double digit led by combination of content increase and integration of acquisitions such as Yachiyo 4W, Ichikoh, AD industries (2 months consolidated) 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 of ICE platforms bode well for tech agnostic approach) to weigh on growth ahead. We believe, meaningful contribution from recent acquisitions have started to kick in which should drive revenue/EBITDA/Adj.PAT CAGR of 14.6%/18.8%/31.3% over FY24-27E and cushion cyclical. Margins are likely to expand to ~10.5% by FY27E (v/s 7.9% in FY23 and 9.4% in FY24) led by ready capacity to execute healthy orders. Led by decline in global light vehicles (LV) growth outlook and resultant impact on margins, we cut FY25/FY26 EPS by 6.5-10%. Maintain BUY with revised TP of Rs208 (earlier Rs224), valuing co at 25x FY27 consol EPS (unchanged). MOTHERSO trades at 30.9x/24.7x FY25/26 consol EPS.

Result Highlights – Steady execution across business verticals

* Consol revenues grew 28.5% YoY (+7.5% QoQ) at Rs288.7b (est ~Rs276.7b). Segmentally, wiring harness revenues grew 9.1% YoY, SMP +26.8% YoY, SMR at +8.3% YoY and emerging business grew ~43% in INR terms. This is against flat growth in light vehicles production globally while the same for NA/Europe were at +1%/-5%. Inorganic (acquired) business contributed Rs62.5b with EBITDA of Rs6.9b implying margins of 11%.

* Consol EBITDA grew ~44% YoY/ +1.4% QoQ to Rs27.8b (est at Rs26b) led by 290bp YoY (-60bp QoQ) expansion in gross margins at 46.4% (est 46.9%). Consequently, margins expanded 100bp YoY (-60bp QoQ) at 9.6% (est 9.4%).

* EBIT margins of key business – WH at 11.7% (vs 10.2% YoY), SMP at 8.7% (vs 7.5% YoY/), SMR at 9.5% (vs 9.4% YoY), emerging biz at 12.2% (vs 11.3% YoY).

* Consequently Adj. PAT grew ~65.5% YoY (-15.3% QoQ) at Rs9.94b (est Rs8b, cons Rs9.3b). Consol net debt at Rs133b as of 1QFY25 (vs Rs103.7b in Mar’24). QoQ increase in the debt was due to Rs17.5b impact of M&A closure.

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