Q4FY23 Review: Samvardhana Motherson: Margin recovery faster than estimates

29 May 2023 , 12:46 PM

Motherson’s Q4 consol. Ebitda came in 15% higher than estimates, as margins surprised positively across segments. As analysts of IIFL Capital Services had highlighted in their recent note, energy cost was a big headwind to Motherson’s margins till Q3FY23. In recent month, prices of natural gas & electricity in Europe have come off substantially. The benefit is flowing into the P&L. Ebitda margin has bounced back from a low of 6.1% in Q1FY23 to 9.0% in Q4, close to the historical normalised range of 9-10%. Meanwhile, Motherson’s revenue growth remained strong (+30% in Q4, 5% beat). Overall order-book is strong at close to USD69bn. Given strong order-book, Motherson is planning to set up green-field plants in coming years.

Q4 results much better than expected: 

Consol. revenue grew 30% YoY and 11% QoQ and came in 5% above our estimate. Revenues were higher than estimates across segments. Consol. Ebitda margin improved 100bp QoQ to 9.0%, 80bp above IIFL Capital Services estimate. Ebitda margin was stronger than expected in Standalone (adjusted for one-off) and overseas operations. Absolute Ebitda beat by 15% and PAT by 20%.

Strong order-book gives visibility on revenue growth: 

Motherson’s revenue performance has been strong in recent quarters. Mgmt mentioned that global production of PVs is still below pre-Covid levels and has room for growth. Motherson has a very strong order-book of close to USD69bn. Given typical execution period of 5-6 years, it translates to USD12.5bn annual revenues (Analysts of IIFL Capital Services FY24 forecast is USD11.2bn). Motherson is planning to set up green-field plants in coming years.

Margin normalisation playing out faster than expected: 

Motherson’s margins had come under pressure due to sharp rise in energy costs, following the outbreak of Russia-Ukraine conflict. If analysts of IIFL Capital Services exclude energy costs, Q3FY23 margins were already at a 6yr high. In recent months, prices of natural gas & electricity in Europe have come off substantially. The benefit is flowing into the P&L. Ebitda margin has rebounded from a low of 6.1% in Q1FY23 to 9.0% in Q4, close to the historical normalized range of 9-10%.