Diversified presence, order book to sustain gains for Samvardhana Motherson

Despite sluggish production by automakers, Samvardhana Motherson International (SAMIL) reported robust performance in the June quarter. Consolidated revenues for the largest listed auto component major were up 29 per cent over the year-ago quarter to Rs 28,868 crore. The company highlighted that the topline growth came amidst muted industry volume growth and an evolving platform mix. Operating profit for the company was up 44 per cent to Rs 2,785 crore, while margins grew 100 basis points to 9.6 per cent.

While the performance was steady and in line with expectations, most of the revenue growth for the quarter came from acquisitions. The company reported that the inorganic contribution to the topline in the quarter stood at Rs 6,240 crore, while it accounted for Rs 680 crore of the consolidated operating profit. The company said that it has completed all its acquisitions, and the integration process is underway. Its organic revenue growth was flattish, in line with global peers.

Global light vehicle volume production was flat year-on-year (Y-o-Y). Except for the EU region, the demand environment for light vehicles remained healthy across key markets. Delays in launches of electric vehicles are impacting production in the European market.

Elara Securities remains watchful of global growth slowing down but expects inorganic growth to help the company outperform going ahead. Analysts led by Jay Kale of the brokerage say they would monitor further acquisitions in the near future as well as the ramp-up in the consumer electronics vertical, which could be supportive of valuations.

Among the key trends playing out is premiumisation, with the penetration of sports utility vehicles increasing steadily. Hybridisation has taken hold and is the fastest-growing segment. There has been a visible reduction in electric vehicle growth, and platforms based on internal combustion engines are expected to remain relevant in the near to medium term. These trends, however, continue to enhance the content per vehicle growth of the company, given its powertrain-agnostic product portfolio.

The company is emerging as the key beneficiary of the growing popularity of electric vehicles and the rising trend towards premiumisation across segments, given its well-diversified presence across components, geographies, and customers, says Motilal Oswal Research. This is evident in a significant ramp-up in its order book, with its booked business scaling up to $83.9 billion, say analysts led by Aniket Mhatre of the brokerage.

While profitability improvement during the June quarter was led by a favourable business mix, pass-through of inflationary costs, and better cost efficiencies, the company indicated that while copper prices are softening in Q2, a sharp increase in container costs continues to remain a challenge.

JM Financial Research expects revenue and net profit to grow at an annual rate of 15 per cent and 35 per cent, respectively, over FY24-27. Vivek Kumar and Ronak Mehta of the brokerage believe that with its global presence, an expanding product portfolio, and a wide customer base, SAMIL presents a multi-year growth opportunity.

Motilal Oswal Research has reiterated its buy rating and believes that the stock trades at reasonable valuations of 28 times and 22 times its FY25 and FY26 consolidated earnings per share estimates. In addition to the execution of the strong order book, other positives include the ramp-up of new businesses in non-auto sectors and capacities in place for growth.