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Samvardhana Motherson target price: Samvardhana Motherson International's robust financial performance in the January to March quarter (Q4) of financial year 2023-24 (FY24) has led to brokerages raising their target prices and earnings expectations for the next few fiscal years.
Samvardhana Motherson, analysts noted, beat Street expectations across metrics during the recently concluded quarter. It posted a net profit of Rs 1,444 crore in Q4FY24, as against a profit after tax of Rs 699 crore in the year-ago period.
Total revenue from operations rose to Rs 27,058 crore for the period under review as compared to Rs 22,517 crore in Q4FY23.
For the year ended on March 31, 2024, the company reported a net profit of Rs 3,020 crore as against Rs 1,670 crore in FY23.
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Adjusting for forex gains, earnings before interest, tax, depreciation, and amortisation (Ebitda) increased 33 per cent Y-o-Y to around Rs 2,740 crore, beating estimates on better margin in SMR PBV. Ebitda margin, too, expanded more-than-expected by 100bp Y-o-Y to 10.2 per cent.
"Given its well-diversified presence across components, geographies and customers, Samvardhana Motherson is emerging as the key beneficiary of the growing popularity of electric vehicles (EVs) and the rising trend of premiumisation across segments. This is evident in a significant ramp-up in its order book, with its booked business scaling up to $83.9 billion," said analysts at Motilal Oswal Financial Services.
Of the $84-billion booked business (excluding the order book of Yachio and the non-auto business), about 23 per cent came from EVs.
On the capex front, Samvardhana Motherson invested Rs 4,000 crore in FY24, majority of which was done in emerging markets. The company is also in the midst of setting up 18 greenfields (13 in India, 4 in China, and 1 in Poland) in coming years.
It plans to invest another Rs 5,000 crore in FY25, of which about Rs 2,000 crore would be in new greenfields. 70 per cent of the capex is for greenfields in non-auto segments, according to the management.
"All the announced acquisitions as of May, 2024, are closed, with the integration well on track. P&L impact for acquisitions of Yachio, Lumen, and ADI will reflect in Q1FY25. These acquisitions are expected to add another Rs 14,400 crore in net revenues in FY25," the management added.
"We believe the company is well-positioned to navigate the challenges, led by acquisitions at attractive valuations, strong order book, new capacity addition, especially in the non-automotive segment, and improvement in content as customers globally shift toward EV and growing premiumisation trend across segments," noted those at Kotak Institutional Equities.
Earnings upgrade
Given this, Kotak Institutional Equities has increased FY2025-27E earnings per share (EPS) estimates by 7-12 per cent, factoring in higher Ebitda margin assumptions and lower interest cost expenses. It has also increased its target price to Rs 160 (from Rs 125) with an 'Add' rating.
"Strong earnings growth is likely to continue, driven by the integration of acquisitions and cost optimisation. Operating leverage and cost pass-through should support margins. We raise FY25-26F EPS by 5-8 per cent, mainly driven by strong margins for the Modules division. There could be upside to growth in the non-auto businesses, which account for 70 per cent of the greenfield capex (Rs 1,400 crore), but are not accounted for fully in earnings now. Acquisitions could potentially bring further upside," said those at Nomura with a 'Buy' rating and a target of Rs 165 (from Rs 133).
Nuvama Institutional Equities, too, has raised its Ebitda estimate FY25 and FY26 by 10 per cent and 8 per cent, respectively, on the back of its strong management capabilities, pending order book, and increasing content per vehicle due to premiumisation/ electrification.
"We are building in a revenue/Ebitda CAGR of 12 per cent/22 per cent over FY24–26E. We reiterate a 'Buy' rating with a target price of Rs 170 (earlier Rs 136)," the brokerage added.
That said, analysts cautioned that cost pressures amid rising Copper and Aluminum costs, coupled with the lagged pass-through, are expected to pose a near-term challenge.
