1 week ago
Samvardhana Motherson shares fell another 3.5% in early trade on November 13 after the stock ended nearly 5% lower in the previous session following the company's September quarter results. Even as the auto component maker missed CNBC-TV18 analysts' poll expectations across parameters, most brokerages remain bullish on the stock.
In a post-earnings chat with CNBC-TV18, Samvardhana Motherson’s top management said that the firm’s measures taken related to non-automotive business will aid growth and that in the quarter under review, the company’s organic growth was 5% higher than the overall market growth.
The auto component maker asserted that the second half of the year normally has better production and that much of the synergy for inorganic business will play out over the next 12-15 months.
Here’s what brokerages make of Samvardhana Motherson's Q2 results:
CLSA has upgraded its rating on Samvardhana Motherson to outperform and raised the target price to ₹190, implying a potential upside of 14% from the closing price of November 12. This, despite the brokerage noting the firm’s EBITDA was 11% below estimate led by a 106 basis points EBITDA margin disappointment.
The brokerage noted that the auto component manufacturer’s revenue grew 18.5% YoY and is strong across the verticals, though the EBITDA margin declined quarter-on-quarter in the module and wiring harness division.
| Brokerage | Rating | Price target |
| CLSA | Outperform | 190 |
| Jefferies | Buy | 215 |
| Nomura | Buy | 209 |
| Morgan Stanley | Overweight | 193 |
| Citi | Sell | 125 |
CLSA believes the business is undergoing a turbulent phase led by weak OEM demand in developed markets such as the US and EU. Also, the benefits of pending inorganic growth are yet to be reflected after the recent fundraising.
Jefferies has a buy call on Samvardhana Motherson with a target price of ₹215.
The brokerage also pointed out that the second quarter EBITDA rose 34% YoY but fell 12% on a sequential basis and is 14% below consensus and EBITDA margins slipped 30-120bp sequentially across mirror, wiring harness and polymer divisions.
Samvardhana Motherson expects margins to improve in the second half of the fiscal with cost pass through to customers, the brokerage said. It added the company’s electronics glass facility has started production and a bigger plant is expected to start in the first quarter of FY27.
Jefferies had cut FY25-27 EPS estimates by 9-16% but still expects a strong 32% EPS CAGR over FY24-27.
Nomura has an even higher price target of ₹209, with a buy rating though it noted that the second quarter was below estimates, and consumer electronics ramped up to support growth.
The brokerage also highlighted management commentary that said organic revenue growth (ex-acquisitions) was flat year-on-year alongside a 5% YoY decline in global PV volumes. Delayed launches and China OEs gaining share are impacting growth, it added.
The firm has also said that five of 19 greenfield plants have come onstream whereas eight are coming in the second quarter of the financial year. The firm has taken costs upfront, which should lead to better growth and margins in the second half of the year.
Nomura is of the view that the current valuation at 18x FY27F EPS is attractive.
Morgan Stanley with an overweight stance and target price of ₹193 said that the company leveraging gains on a seasonal uptick in auto volumes, stronger balance sheet and ramp-up of non-auto business leads the brokerage to have an overweight stance.
Citi, meanwhile, has given Samvardhana Motherson shares a sell call with a target price of ₹125. “The second quarter below estimates as most businesses, with the exception of integrated assemblies, and emerging businesses, performed significantly weaker than expectations,” it said.
It also highlighted management commentary that said in a seasonally weak quarter, global auto demand was further impacted by macro challenges, geopolitical uncertainties in certain geographies and product-mix changes.
“Funds generated via recent capital raise have been used to repay some debt. The management expects a demand-recovery in 2HFY25, driving revenue growth and margin expansion,” Citi said.
Samvardhana Motherson shares traded nearly 2% lower at ₹163.15 at 10:56 am. In the past year, the stock gave a return of 82% to its investors as compared to Nifty 50's 22% rise during the period.
