Q1FY24 Review: Samvardhana Motherson: On a strong earnings growth trajectory

11 Aug 2023 , 02:02 PM

Motherson’s Q1 Ebitda missed analysts of IIFL Capital Services estimate by 6%, owing to sharp sequential moderation in margins in SMR. Other businesses, in aggregate, were largely in-line. Yet, they largely maintain their estimates as SMR margins are likely to improve over the course of the year. Motherson’s revenue growth has been outperforming the global auto industry due to market-share wins and higher content per vehicle. Margins are on an improving trajectory. They expect Consol. EPS to go up 3x over FY23-26. Motherson’s recently announced acquisitions can add USD2.6bn to the revenue, implying 20% upside potential to their current FY25 revenue est. of USD12.5bn. Although detailed financials of the acquisitions are not available yet, analysts of IIFL Capital Services estimate that they can add 8-10% to their current FY25 EPS estimates, with further upside if Motherson is able to turnaround the companies. Retain BUY; TP is Rs116 (21% upside). 

Q1FY24 Ebitda up 72% YoY, but miss est. by 6%: 

Revenue grew 27% YoY (in line), with strong growth across segments. Ebitda margins improved 220bps YoY, but contracted 40bps QoQ (50bp miss vs estimates). The miss was due to sharp moderation in SMR’s margins (- 430bp QoQ). Mgmt mentioned that SMR margins are likely to be better in the back-end of the year with better price realisations. Ebitda, although up 72% YoY, missed analysts of IIFL Capital Services estimate by 6%; PAT missed by 8%. 

Outperforming industry; margins on an uptrend: 

Motherson continues to outperform the underlying global auto industry, with marketshare gains and increase in content per vehicle. In Q1FY24, Motherson’s Consol. revenue grew 28% YoY, against global car production growth of 16% YoY. Motherson’s margins are on an improving trajectory, with moderation in prices of energy and commodities. 

Acquisitions to add more USD2.6bn to revenue in FY25: 

Motherson has announced multiple acquisitions in the past 12 months, with aggregate revenue of USD2.6bn. All of these acquisitions are likely to be concluded by Q1FY25, which implies potential 20% revenue upside to Analysts of IIFL Capital Services current FY25 revenue estimate of USD12.5bn. In aggregate, these acquisitions are likely to be EPS-accretive by 8-10%. Analysts of IIFL Capital Services haven’t built these into their estimates yet, pending completion and full financial disclosure.