Near-term demand challenges for Samvardhana Motherson International

The country’s largest listed auto-parts company, Samvardhana Motherson International (SAMIL), disappointed the Street with its performance in the fourth quarter of 2024-25 (Q4FY25). Weak global demand and the company’s ongoing expansion impacted its margins. However, despite weakness in global passenger vehicle production amid demand and tariff woes, the company was able to outperform peers and gain market share.

 

The company also unveiled plans to quadruple its gross revenues over the next five years. The aggressive growth plan is expected to be led by acquisitions, new product lines, premiumisation, and higher content per vehicle. Given the medium-term prospects led by consolidation in the sector, most brokerages are positive on the outlook. Near-term gains, however, could be limited as the stock has run up 26 per cent over the last three months, and is trading at ₹150. 

 

While SAMIL’s organic revenue growth was flat due to weak global auto production volumes, its consolidated revenues increased 8 per cent year-on-year (Y-o-Y) due to acquisitions. Within segments, gains were led by emerging business, which grew by 41 per cent, modules and polymers segments that posted 12 per cent growth, and wiring harness division that saw a 5 per cent growth. Consolidated growth was partly offset by a 1-7 per cent decline in integrated assemblies and vision systems revenues.

 

Though global demand for light vehicles, according to ICICI Securities, is muted, SAMIL continues to outperform the underlying industry led by premiumisation/hybridisation-driven content growth and cross-selling opportunities from recent acquisitions. Analysts led by Ronak Mehta of the brokerage highlight that non-automotive businesses (led by consumer electronics and aerospace) are expected to continue their strong growth momentum. The brokerage has a “Buy” rating, with a target price of ₹185.

 

Kotak Securities, too, says that the near term will remain challenging for SAMIL, given the risk of recession in the US, and its potential spillover to other markets. In the medium term, however, Rishi Vora of the brokerage believes that the company will outperform blended market growth. This will be driven by a strong order book, new product additions, and a foray into newer markets, led by acquisitions, a scale-up of the SAS (steering angle sensor) business with insourcing of polymer-related products, and an increase in content as customers globally shift toward electric vehicles and growing premiumisation trends across segments.

 

Triggers for the stock could be the major rampup in consumer electronics manufacturing supported by strong vertical and backward integration initiatives (in mobile phone components, printed circuit board assembly, silicon wafer components) over the next five years. 

 

The company is also eyeing a quadrupling of the group's gross revenue from $25.7 billion in FY25 to $108 billion by FY30. Emkay Research points out that with the worst behind for the core business, a major foray into consumer electronics amid the bold vision for FY30 puts SAMIL on a strong footing. The brokerage has raised its sum-of-the-parts valuation-based target price by 20 per cent to ₹180 to reflect the improving outlook.

 

The operating profit margins for the company came in below estimates at 9 per cent and was down 70-183 basis points (bps) on a sequential basis and Y-o-Y basis. This was led by lower profitability for the modules and polymer segment, whose margins fell 426 bps to 6.5 per cent. Margins were impacted by tariff-led uncertainties in many regions and startup costs for greenfields in non-auto business.

 

Motilal Oswal Research highlights that the ongoing tariff issue may lead to some near-term slowdown in some of its key geographies. The brokerage, which has a “Buy” rating with a target price of ₹175, expects SAMIL to be the least impacted by these tariffs as it has all its facilities close to its customers.