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Weak result; 2HFY25E to be better

QIP proceeds utilized to pare down debt; preparing for opportunities

* Samvardhana Motherson (MOTHERSO) reported muted results, with an EBITDA margin of 8.8%, down 80bp QoQ (vs. est. 9.4%), hit by global PV industry slowdown, slower EV ramp-up, and seasonal factors. Despite the global challenges and inflated working capital, the company’s RoCE for 1HFY25 stood at 17.3% (up from 16.9% in FY24).

* To factor in the weak demand in key regions, we cut our FY25E/FY26E EPS by ~13.1%/~13.5%. We expect MOTHERSO to continue outperforming the global automobile sales, fueled by rising premiumization and EV transition, a robust order backlog, and successful integration of recent acquisitions. We reiterate our BUY rating with a revised TP of INR210 (based on 25x Sep’26E EPS).

Net debt declines INR28.7b QoQ to INR104.9b in 2QFY25

* Consol. revenue grew 18% YoY to INR278.1b (est. INR287.2b) largely led by inorganic growth. Revenue for organic business grew 4-5% YoY, while the global light vehicle industry declined by 5% YoY. Consol. EBITDA grew 23% YoY to INR24.5b (est. INR27.1b), and consol. adj. PAT grew 65.7% YoY to INR7.5b (est. INR9.5b). Revenue from the acquired assets stood at INR62b in 2QFY25 vs. INR18.5b YoY. Normalized EBITDA included contributions from acquired assets at INR5.9b in 2QFY25 vs. INR1.8b in 2QFY24.

* The company’s 1HFY25 revenue/EBITDA/PAT grew ~23%/34%/66% YoY, while we expect the same to grow ~13%/18%/49% YoY in 2HFY25.

* Wiring harness business grew 4% YoY to INR81.1b (est. INR85.1b), and EBITDA margin improved 60bp YoY (-50bp QoQ) to 11.2% (est. 11.2%). The segment reported revenue growth despite softening of CV production volumes in North America, Europe, and China.

* Modules & Polymer business revenue grew 27% YoY to INR146.4b (est. INR142.5b), and EBITDA margin improved 30bp YoY (-130bp QoQ) to 7.4% (est. 8.3%). Growth was driven by the full impact of the acquisitions (Dr. Schneider and Yachiyo), while organic business growth was flat.

* Vision system business revenue grew 3% YoY to INR48.1b (est. INR52.4b), while EBITDA margin remained stable YoY (-30bp QoQ) to 9.2% (est. 9.9%). Revenue growth was fueled by China and South Asia, partially offset by lower volumes in North America.

* Integrated assemblies business revenue grew 53% YoY to INR25.3b. Margin stood at 11.9% (-180bp QoQ; est. 10.0%). Sluggishness in EVs hurt growth. However, YoY growth numbers are not comparable, as 2QFY24 had only two months of operations.

* Emerging business grew 43% YoY to ~INR29.1b (est. INR29.8b), and EBITDA margin expanded 90bp YoY (+110bp QoQ) to 13.3% (est. 14.0%).

* Net debt declined QoQ to INR104.96b (vs. INR133.7b in 1QFY25). Liquidity as of Sep’24 included proceeds from QIP of ~INR64.37b. ~INR60b of this has been subsequently used to pay down debt and for general corporate purposes.

Highlights from the management commentary

* Management expects 2HFY25 to be better than 1H given: 1) a seasonally strong half; 2) some of the stuck projects to ramp-up; 3) margins would normalize as the company had taken upfront costs for some projects that got delayed; and 4) the normalization of increased working capital in 2H.

* ROCE improved despite global challenges and inflated working capital: Despite the global challenges and inflated working capital, the company’s RoCE for 1HFY25 stood at 17.3% (up from 16.9% in FY24).

* Booked business stands at USD88b (up from USD84b in FY24); this would be executed over the next 5-6 years. Almost 24% of this comes from EVs.

* The non-auto segment has ramped up to a run rate of INR30b for FY25E. The pilot line for the consumer electronics segment has commenced production from Nov’24. The large plant is expected to commence production in 1.5 years, which should propel non-auto segment revenue.

* Key challenges ahead: Apart from a weak demand macro globally, some of the other challenges include: 1) Cu has started inching up again after cooling off in 2Q; 2) energy costs have started rising again in Europe; and 3) logistics challenges continue due to the Red Sea crisis.

Valuation and view

* We expect MOTHERSO to continue outperforming the global automobile sales, fueled by rising premiumization and EV transition, a robust order backlog, both in autos and non-autos (booked business of USD88b as of 2Q-end); and successful integration of recent acquisitions.

* To factor in the slowdown in demand in key regions, we cut our FY25E/FY26E EPS by ~13.1%/~13.5%. The stock trades at reasonable valuations of 30x/23x FY25E/FY26E consolidated EPS. We reiterate our BUY rating with a revised TP of INR210 (based on 25x Sep’26E EPS).

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