Revving up returns: Samvardhana's gear shift to stock mkt superiority

Samil shifts into overdrive, while Motherson Sumi Wiring stalls in slow lane

It is a study in contrast on the returns front for the two listed Motherson companies. While Samvardhana Motherson International (Samil), the global entity of the group, hit its 52-week highs and crossed the Rs 1 trillion mark on Thursday, Motherson Sumi Wiring India (MSWIL), which is India-focused, has been a laggard.

Samil has gained over 91 per cent over the past year, while MSWIL is trailing behind with gains of 17 per cent over this period.

The recent gains for Samil have come on the back of some upgrades after the 2023-24 (FY24) January-March quarter results, while its smaller twin has had mixed reviews.

In addition to a strong operating performance in the March quarter, a healthy order book, scaling up of acquisitions, falling leverage levels, and structural trends in supplier consolidation are helping Samil.

Demand outlook commentary, order books, and diversified products and geography remain key for sustained sales growth for both companies going forward.

On the near-term outlook for Samil, analysts Vivek Kumar and Ronak Mehta of JM Financial highlight that the demand environment for light vehicles continues to remain healthy across geographies.

The company’s total automotive (auto) order book stands at $83.9 billion, of which 23 per cent is from electric vehicles (EVs).

Over the medium-to-longer term, the brokerage expects premiumisation and electrification to drive content per vehicle for the company’s powertrain-agnostic product portfolio.

Motilal Oswal Research, too, echoes this view on Samil and expects the company, which is well-diversified across components, geographies, and customers, to be a key beneficiary of the growing popularity of EVs and the rising trend of premiumisation across segments.

The brokerage, which has a ‘buy’ rating with a target of Rs 170, increased its 2024-25 (FY25) through 2025-26 earnings estimates by 2-5 per cent to factor in significant growth potential in the coming years for its non-auto divisions, particularly aerospace and consumer electronics, and improved margins.

What should help the company do better on a consolidated basis is improving operating leverage and integrating recent acquisitions into the financials of the company.

The company indicated that the profit and loss (financial) impact of the Yachiyo, Lumen, and ADI acquisitions will start reflecting in the first quarter of FY25. These acquisitions are expected to contribute an additional Rs 14,400 crore in net revenues for FY25.

Reduction of debt is another positive for the company, which ended FY24 with revenues of just under Rs 99,000 crore. While gross debt came down by Rs 1,835 crore to Rs 17,351 crore, net debt fell by Rs 2,178 crore to Rs 10,372 crore, the difference being accounted for by an increase in cash balance.

Kotak Securities has increased their FY25 through 2026-27 earnings estimates by 7–12 per cent, factoring in higher operating profit margin assumptions and lower interest cost expenses.

Analysts Rishi Vora and Praveen Poreddy of the brokerage expect it to gain from an increase in content per vehicle in passenger vehicles (PVs) driven by mergers and acquisitions, premiumisation, strong relationships with automakers, and consolidation of suppliers. They have an ‘add’ rating with a target price of Rs 160.

Brokerages have mixed views on the outlook for MSWIL.

The company reported a strong March quarter performance, with revenues growing by 20 per cent while operating and net profit saw a jump of 32–38 per cent each.

The management indicated that ongoing premiumisation trends, including the shift to sport utility vehicles (SUVs) and electrification, are the key growth drivers.

Emkay Research has a ‘buy’ rating on the stock with a target price of Rs 80 and believes that with market-share loss within Maruti Suzuki India now behind, breakthroughs in two large SUV-focused automakers and the EV-shift should help sustain the robust performance even though PV industry growth is moderating.

What should drive the margin performance of the company going forward is increased operating leverage and rising localisation.

A new capacity addition in FY25, in line with customer order wins, is expected to support medium-term growth.

JM Financial Research has marginally reduced its growth estimates for FY25 to factor in moderation in PV industry growth. The brokerage, however, has maintained its ‘buy’ rating with a target price of Rs 75.

Elara Securities has downgraded the stock to a ‘sell’ while maintaining the target price of Rs 62. While the brokerage expects increasing content per vehicle in EVs to benefit the company in the initial years, it highlights risks associated with technology and platform changes as automakers globally try to reduce wiring harness content in a vehicle to trim the overall vehicle weight.

Analysts at the brokerage, led by Jay Kale, said that MSWIL is now a single product/geography play, restricting any potential for a rerating above 30x price-to-earnings despite industry-leading return ratios.