Shares of auto component major Samvardhana Motherson fell 6.93 per cent to hit a low of Rs 64.40 on BSE amid high volumes. Against a two-week average of 8.98 lakh shares, a total of 14.42 crore shares had changed hands on BSE by 9.35 am. On NSE, a total of 4.38 crore shares changed hands, data showed. The deal was carried out at an average of Rs 65 per share.
As per a media report, Japan-based Sojitz Corp had on Monday said it would sell 1.9 per cent stake in auto component company through a block deal. The deal size for the sale was fixed at Rs 824 crore.
The Motherson group recently reorganised itself and changed the name of Motherson Sumi Systems to Samvardhana Motherson International.
Samvardhana Motherson International (erstwhile Motherson Sumi) primarily serves the global passenger vehicle (PV) industry with wiring harnesses, vision systems (mirrors) and plastic body parts as key product lines.
Financials
While there has been a decline in the company’s profitability and operating performance over the past few quarters due to inflationary pressures and sub-optimal offtake to OEMs on account of supply side constraints (EBITDA margins stood at 6.5 per cent in Q1FY2023, down from 7.1 per cent in Q4FY2022), ICRA notes that the company has undertaken various cost-control initiatives and is in discussions with its customers to attain compensation for inflationary pressures/lower offtake.
SAMIL’s financial performance remains exposed to challenges such as cyclicality, increasing regulatory interventions and fierce competition witnessed by automotive companies in key developed markets, especially Europe (constituting around 40 per cent of the company’s revenues). Additionally, the overall large revenue dependence on European OEMs exposes the company to adverse impact on demand from the ongoing geopolitical conflict in the region and imposition of any trade tariffs.
However, SAMIL’s manufacturing footprint is spread over ~269 locations (in proximity to customers) across the globe and its proven ability to adapt to changing customer requirements across geographies mitigate the risk to an extent, rating agency said in rationale.
Should you Invest?
According to Emkay Global, the company will report low revenue growth in the September quarter due to its notable overseas exposure. The firm has cut its target price on the stock from Rs 95 to Rs 90 but has a ‘buy’ rating on the stock.
ICICIdirect recently had a coverage on this stock. “Given the macro uncertainty in global markets vis-à-vis a more stable demand environment domestically, we are dropping coverage on SAMIL (which is a play on a recovery in global automobile space) and would advise investors to switch their holding to Motherson Sumi Wiring India (MSWIL),” the company said in a September 29 note.
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