Weak global auto volumes to keep Samvardhana Motherson under pressure

Samvardhana faces tight corners in auto market

Notwithstanding weak global automotive component demand, Samvardhana Motherson delivered a resilient performance in the October-December quarter (Q3). The company’s Q3 performance was broadly in line with Street estimates, as weakness on the revenue front was offset by better-than-expected gross margins and lower other expenses.

 

While the near-term outlook is affected by demand headwinds, the sharp price correction and strong Q3 performance have allayed investor concerns about growth and valuations. The stock of the automotive component major is down over 15 per cent in the past month.

 

Consolidated revenues for the company increased by just under 8 per cent, driven by a strong performance in emerging businesses as well as the modules and polymer segment. Sales from the wiring harness business and Vision Systems offset some of the gains from the other segments.

 

Although wiring harness revenues were down 1 per cent year-on-year (Y-o-Y), brokerages point out that this was largely stable given demand-related concerns in the commercial vehicle markets of Europe and North America. Revenue growth for the Vision Systems business remained muted due to an unfavourable platform/model mix in North America. Revenues from inorganic avenues accounted for 8 per cent of overall sales. Organic sales, however, declined by 1 per cent Y-o-Y due to weakness in global automotive production volumes.

 

Even with consolidated sales growth in the high single digits, the company continues to outperform the global automotive market, which fell 1.2 per cent compared to the year-ago quarter.

 

Although revenue growth was weak, the company expanded its operating profit by 16 per cent, in line with estimates. Operating profit margins grew by 70 basis points to 9.7 per cent, supported by better profitability in wiring harnesses and integrated assemblies.

 

Given the muted outlook, most brokerages have cut their earnings estimates for the next couple of years by 3-5 per cent. However, analysts Rishi Vora and Praveen Poreddy of Kotak Research believe the company will outperform blended market growth, driven by a strong order book and new product additions.

 

Further, the company’s foray into newer markets through acquisitions, the scale-up of its SAS (automotive) business with the insourcing of polymer-related products, and increased content as customers globally shift toward electric vehicles (EVs) and premiumisation trends should support growth.

 

Kotak Research has upgraded the stock to ‘add’ from ‘reduce’ as the price has corrected by 24 per cent in the past three months.

 

Motilal Oswal Research also expects the company to continue outperforming global automotive sales, supported by rising premiumisation and the EV transition, a robust order backlog in both automotive and non-automotive segments, and the successful integration of recent acquisitions. However, analysts Aniket Mhatre and Amber Shukla of the brokerage have reduced their 2025-26 earnings estimates by 15 per cent, factoring in the demand slowdown in key regions.

 

The stock has corrected over the past few months as investors remain concerned about the ongoing slowdown in some of its key regions and uncertainty around tariff barriers that may impact global business dynamics. However, the strong Q3 performance demonstrates the company’s business resilience and should help alleviate these concerns, they add. The brokerage has a ‘buy’ rating.

 

Nuvama Research remains positive about the company’s prospects, citing strong management capability, inorganic initiatives, a pending order book, and increasing content. It has reiterated its ‘buy’ rating.