Q2FY24 Review: Samvardhana Motherson: Not-so-good European summer

10 Nov 2023 , 12:26 PM

Motherson’s Q2 Consol. Ebitda missed analysts of IIFL Capital Services estimate by 12% and PAT by 34%, primarily due to miss in SMP. A combination of summer holidays in Europe, and labour strikes in US led to weak revenue growth and margins in SMP. SMP was in a strong growth and margin improvement phase in the last 5 quarters, before reversing in Q2. The remaining businesses (standalone, SMR, Others) saw small beat/miss vs. analysts of IIFL Capital Services estimates. Motherson has a strong order-book (USD77bn). Few acquisitions (annualised rev >USD1.0bn) were completed in Q2. Other acquisitions, which have been announced but not completed, would add ~USD1.0bn to revenue in FY25. Net Debt has gone up from ~Rs90bn at FY23-end to Rs160bn at the end of Sep-23, primarily due to acquisition costs. Analysts of IIFL Capital Services cut FY24/FY25/FY26 EPS by 14%/7%/3% post the Q2 miss. Retain BUY with TP of Rs115 (18x 2YF EPS). 

Q2 Ebitda miss by 12%, primarily due to SMP: 

Consol. Ebitda missed analysts of IIFL Capital Services est. by 12%, primarily due to 22% Ebitda miss in SMP. SMP revenues were weak growing only 1% YoY (EUR terms). SMP Ebitda margin contracted 110bp QoQ to 5.9%. Ebitda in the remaining segments (Standalone, SMR, Other) were within +/-4% of analysts of IIFL Capital Services estimates. Higher leverage in the P&L (depreciation, interest cost) led to 12% Ebitda miss getting magnified to 34% miss at PAT level.

Strong order-book and acquisitions to support growth; margin improvement to resume in Q3: 

Motherson has an order-book of ~USD77bn, of which 22% are for EV programs. In Q2FY24, Motherson completed acquisitions, which would add >USD1bn to revs. Further acquisitions (announced, not completed) would add USD1bn to FY25 revenue (not in analysts of IIFL Capital Services estimates). From a near-term perspective, revenue growth and margins should improve from Q3/Q4 due to seasonality as well as end of Auto workers’ strikes in US. Costs such as gas & resin, which were a pressure point in FY23, have eased. 

Rise in debt higher than expected: 

Net Debt has gone up from ~Rs90bn at Mar-23 to Rs160bn at Sep-23. Of this, approximately Rs50bn is attributable to cost of acquisitions (incl. existing debt in targets). Analysts of IIFL Capital Services expect acquisitions (announced, not completed) to add Rs40bn to net debt. In addition, mgmt. raised FY24 capex guidance from ~Rs30bn to ~Rs45bn, for new plants (organic) and capex in new acquisitions.