Acquisitions, order book to drive growth for Samvardhana Motherson

Samvardhana Motherson stock is up 17 per cent from November lows as brokerages point to the AutoElectric acquisition talks, rising content per vehicle and an $87 billion order book

From its lows in November, the stock of the country’s largest auto parts company by market capitalisation (mcap), Samvardhana Motherson International (SAMIL), gained about 17 per cent.

 

In addition to better-than-expected September quarter results, rising trend of higher content per vehicle, market share gains and the recent acquisition have led to gains for the auto components major.

 

The company recently announced its intention to acquire German-based automotive wiring harness space major AutoElectric. The target company is a global manufacturer of automotive wiring harnesses for passenger and commercial vehicles with 22 facilities in 11 countries.

 

The purchase consideration for the deal is euro 207 million. 

Given that AutoElectric reported revenue of euro 749 million and 6.4 per cent operating profit margin in CY24, the deal is valued at 4.3 times the enterprise value to operating profit.

 

About 81 per cent of AutoElectric’s revenues come from passenger vehicles while the rest is from commercial vehicles.

 

The acquisition strategically complements SAMIL's existing wiring harness business by expanding its presence in the growing electric and hybrid vehicle segments, said Nomura Research.

 

The company’s deep expertise in low and high voltage powertrain harnesses, body harnesses, and specialty components should provide SAMIL significant cross-sell opportunities and access to additional original equipment manufacturers (OEMs), said Kapil Singh and Siddhartha Bera of the brokerage.

 

The transaction also provides SAMIL an expanded geographic footprint, enhancing its presence in Europe, North America, and Asia.

 

The brokerage has a ‘buy’ rating with a target price of ₹127.

 

Inorganic initiatives will also help the company hit its $108 billion target in gross revenues by FY30 which translates into a 33 per cent annual growth over this period.

 

The company is expected to outperform global automobile sales, fuelled by rising premiumisation and electric vehicle transition, a robust order backlog in autos and non-autos, and a successful integration of recent acquisitions.

 

While the ongoing tariff issue may lead to a near-term slowdown in some of its key geographies, Motilal Oswal Research expects SAMIL to be the least impacted by these tariffs.  

 

This comes as it has all its facilities close to its customers and can effectively realign supplies according to customer needs.

 

The brokerage has a buy rating with a target price of ₹129 per share.

 

Another trigger for the stock has been the better-than-expected performance in the September quarter.

 

Revenue and operating profit, which saw 7-8 per cent year-on-year (Y-o-Y) growth, were higher than Street estimates by up to 5 per cent. Better margins in the modules and polymer, integrated assemblies and emerging divisions led to outperformance at the operating level.

 

Given the order book of over $87 billion at the end of September, inorganic initiatives and increasing content, brokerages expect the company to post a strong growth over the FY25-28 period.

 

Nuvama Research is constructive on SAMIL’s prospects on the back of strong management capability, inorganic initiatives, pending order book and increasing content.

 

The brokerage is increasing its FY26E–28 operating profit by up to 9 per cent to factor in higher modules/polymer and emerging division margins and Yutaka acquisition.

 

It has a buy rating with a target price of ₹126.