Buy Large Cap Auto Ancillary Stock, Plunges 7.71% In 1 Year

Samvardhana Motherson International Ltd is a large-cap auto ancillary company with a market capitalization of Rs 54,542.31 crore. The stock has fallen marginally by 0.36% on BSE in Monday's trade to end at Rs 80.49 per share. In the last one year, it has plunged by 7.71% but over three years it has managed to generate a return of 63.17%. Considering the company's Strong performance across businesses, brokerage firm Motilal Oswal has initiated a buy call on the stock with a target price of Rs 100.

Q4FY23 Performance
Samvardhana Motherson's Q4FY23 performance significantly beat the brokerage firm's estimates. It was driven by improving supplies across key markets, resulting in margin gains across businesses. The revenue grew 31% YoY to Rs 224.8b, EBITDA increased 65% YoY to Rs 20.2b, and adj. PAT jumped 3.6x YoY to Rs 6.5b Even for FY23 revenue, EBITDA and PAT grew 22%, 25%, and 90% YoY respectively.

The strong revenue growth was driven by easing supplies across markets and healthy demand. Margin recovery was driven by a decline in energy prices, partial pass-through of inflationary pressures, and operating leverage.

Management Outlook
As per Motilal Oswal's research note, the large-cap company's net order book increased to EUR19.7b (v/s EUR18.2b in 2QFY23 and EUR16.1b in 4QFY22), with EVs accounting for 39% of orders.

The management has suggested that the capital expenditure (Capex) of FY24 is expected to be Rs 30b (v/s Rs 21.8b in FY23) to support growth, especially in the Indian market. It is investing in seven greenfield plants (six in India and three for emerging businesses).

Additionally, the net debt (ex-lease liabilities) has also reduced to Rs 10b QoQ to Rs 74.7b. It expects further moderation in working capital, as the supply chain improves.

Valuation & Rating
The brokerage house feels that Motherson will continue to benefit substantially from easing supply-side issues and receding cost headwinds, leading to strong growth and balance sheet deleveraging.

It believes that the stock trades at reasonable valuations of 20.7x/16.8x FY24E/FY25E consolidated EPS. "With high operating leverage, reasonable financial gearing, and no risk of EVs, this large-cap auto ancillary stock is our preferred pick in the auto component industry. We reiterate our BUY rating with a target price of Rs 100 (Mar'25E based on SOTP)."

Dividend Details
The Board of Directors of the Company in its meeting held on Friday, May 26, 2023, recommended a dividend of Rs 0.65 per equity share face value of Re 1 each for the financial year ended March 31, 2023, on the equity share capital of the company, subject to the approval of the shareholders at the ensuing Annual General Meeting ("AGM").

Disclaimer
The stock has been picked up from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author, or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.