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Organic revenue declines YoY

Samvardhana Motherson International (MOTHERSO IN) organic revenue growth declined by 1% YoY yet slightly outperformed global automotive production of negative 5% YoY (exChina). Consolidated revenue grew 8% YoY to INR 278bn, driven by inorganic revenue. EBITDA margin came in ahead of our estimates at 9.7%, up 91bp QoQ vs our estimates of 9.4%), led by higher margin at the wiring harness division of 11.8%, up 61bp QoQ

As discussed in our thematic report, China energizing seismic shifts, released on 27 January 2025, we believe MOTHERSO’s key EU clients are the most vulnerable currently, and this is likely to have a ripple effect on suppliers, such as SAMIL. We reduce our FY26-27E EPS estimates by 12% to factor in weak global automotive demand and in an uncertain macro environment. So, we retain Reduce with a lower TP to INR 129 (from INR 147) on 18x FY27E P/E, which is still at a 125% premium to global peers (we see a downside risk to these multiples, if MOTHERSO is unable to execute large acquisitions in the medium term).

Atsumitec acquisition to strengthen position with Japanese OEM: MOTHERSO acquired a 95% stake in Atsumitec, a Japan-based manufacturing chassis and transmission components company for 4W and 2W segments. Atsumitec has nine manufacturing facilities across seven countries (Japan, China, the US, Mexico, Thailand, Indonesia, and Vietnam), which give the company entry into new products and will further diversify its customer base. In Q3FY25, MOTHERSO also formed two new JVs: with Sanco, Japan and Matsui, Japan. Along with Atsumitec, the company also acquired Brazil based Baldi auto, a tier 2 automotive supplier. Separately, In Q3FY25, standalone revenue grew 9.3% YoY while EBITDA declined by 23% YoY and margin deteriorated by 355bp QoQ. Margin was adversely affected by weak EUR (and hence weak exports) and negative operating leverage in the EU market along with weakness in CV demand in India

FY25 capex guidance cut to INR 45bn; deleveraging plans on track: The company has allocated a capex of INR 45bn for FY25 vs an earlier INR 50bn. It has already commenced its first plant to manufacture consumer electronics in Q3FY25 (currently being ramped up) and on track for other two plants to start production from FY26-27. Net debt decreased from INR 116bn in September 2024 to INR 105bn in December 2024, led by QIP proceeds. The net debt-EBITDA ratio has improved to 0.9x in December vs 1.0x in September 2024

Retain Reduce with a lower TP of INR 129: We see limited margin expansion potential, led by a weak demand scenario globally and emerging pressure on legacy OEM, especially EU ones, which are key customers of MOTHERSO. We lower our earnings estimates by ~12% each during FY26-27. We lower our TP to INR 129 from INR 147 based on 18x (unchanged) FY27E P/E, which is still at a 125% premium to global peers (we see downside risk to these multiples if the company is unable to execute large acquisitions in the medium term). Any sharp recovery in global demand and significant margin expansion remains key risks to our call and estimates.

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