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Standing tall amid all adversities

We attended the SAMIL Analyst Meet, where management elaborated on its Vision 2030 targets. Its key performance highlights over the past five years include: 1) 3x growth in EBIT and 4.7x growth in PAT; 2) RoCE improved to 18.4% from 10.5% in FY20; and 3) net debt/EBITDA stands at 0.9x (the lowest in a decade). While SAMIL has fallen short of its five-year target, its performance remains commendable when viewed in the context of the significant headwinds faced during this period. The company has set a revenue target of USD108b for FY30, with other parameters expected to remain stable. In its core business, SAMIL aims to leverage synergies from 23 recent acquisitions and turn around 70 red units inherited through these acquisitions. Beyond this, its two key growth drivers include: 1) Aerospace: As a Tier 1 supplier to both Boeing and Airbus, the company is well-positioned to witness significant growth opportunities ahead; 2) Consumer Electronics: Being selected as a trusted partner by one of the most renowned brands globally highlights SAMIL’s tech capabilities and opens up substantial future growth opportunities. SAMIL is not directly impacted by US tariffs as its facilities are close to most of its customers. Further, given the rising scale, management would look to unlock value by listing some of its key businesses separately, at an opportune time. Hence, despite the global headwinds, reiterate our Buy rating on SAMIL with a TP of INR114 (based on 24x June-27E EPS) given its significant growth opportunities going forward.

Vision 2030

* SAMIL has outlined its next five-year targets, which entail: 1) revenue target of USD108b by 2030 on a gross basis (FY25 at USD25.7b); 2) Diversification: 3CX10; 3) RoCE: 40%; and 4) Dividend payout: up to 40% of consolidated profit.

* Given the significant scale-up expected over the next five years, SAMIL plans to unlock value by demerging some of its large businesses into individual companies, which will eventually be separately listed, without a holding company structure.

Vision 2025: SAMIL scorecard

* SAMIL had set a target of USD36b in FY20 for achievement by FY25, against which it has delivered USD25.7b, on a gross basis.

* While it fell short of its target, it is important to recognize that the company significantly outperformed the end market amid an exceptionally challenging fiveyear period from 2020 to 2025. Major headwinds faced by the global auto industry during this time included: 1) COVID; 2) Suez canal blockage crisis; 3) Energy crisis in Europe; 4) semiconductor shortage; and 5) geopolitical crisis.

* Given these multiple headwinds, the global auto industry has posted just 1.5% CAGR in this 5-year period, reaching 90.3m units, much lower than the estimated 98.4m. As a result, the cumulative volumes lost by the industry over this five-year period stood at 60m units.

* In light of these disruptions, SAMIL’s performance during this period has been exemplary. Some of its key achievements are as follows:

* The company shifted its focus to improving operational efficiency and was able to reduce its loss-making units globally to just 10 from 46 in FY20 (78% reduction).

* Asset turns improved to 6.8x in FY25 from 4x in FY20.

* The company invested in 37 greenfield facilities, of which 36 came in emerging markets.

* Further, it completed a record 23 acquisitions in this five-year period, adding 19 facilities in America, 28 in Europe, 4 in Africa, 21 in India, 10 in China, and 19 in APAC.

* While SAMIL did not meet its revenue target, it successfully achieved its customer diversification goal, with no single customer accounting for over 10% of revenues. This was driven by the addition of over 40 customers, more than 50% of whom are in new industries.

* The company also added new components during this period, which included integrated assembly, sunroof and fuel tanks, climate systems, aircraft engine parts and structural parts.

* The non-auto business registered an 8x growth over the past five years.

* On the innovation front, SAMIL prioritized investments in technology rather than products, filed and secured over 1,500+ patents, and enhanced its R&D network by adding 12 new engineering centers, taking the total to 35 worldwide.

* Further, it delivered a robust 3x growth in EBIT and 4.7x growth in PAT in this five-year period.

* RoCE, although still well below SAMIL’s target, has significantly improved to 18.4% from 10.5% in FY20.

* Further, despite all adversities, the balance sheet strength only improved in this period—net debt/EBITDA improved to 0.9x (the lowest leverage ratio in a decade) from 1.2x in FY21.

* This has, in turn, resulted in credit rating agencies awarding them the best ratings in Motherson’s history.

* Thus, although SAMIL fell short of its five-year target, considering the challenging headwinds, its performance over this period remains highly commendable.

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