Rising Star: Why Samvardhana Motherson Share Price is Soaring?

The adage “a rising tide lifts all boats” aptly describes the current state of the automotive sector, which has experienced significant growth, buoying its ancillary companies along with it.

Driven by increasing demand, the auto industry has seen substantial expansion, with top auto companies benefiting from this trend. Over the past year, the auto index has surged by 64%, reflecting this positive momentum. This growth has also extended to the auto ancillary sector, where stocks have enjoyed substantial gains.

One notable example is Samvardhana Motherson, a leading player in the automotive industry. Over the past year, its share price has risen by an impressive 92.7%, with a further 43.9% increase so far in 2024. This remarkable performance has attracted renewed investor interest, as evidenced by a recent 10% rally in their share price over the past five days.

What’s Driving the Rally in Samvardhana Motherson Share Price?

Let’s explore the factors behind this surge:

1. Robust Financial Performance

Samvardhana Motherson has demonstrated strong financial results, posting an 80.8% increase in net profit to Rs 30.2 billion (bn) in FY24, up from Rs 17 bn in FY23, driven by higher sales volumes. The company’s total revenue from operations also grew by 28% to Rs 986.9 bn in FY24, compared to Rs 787.9 bn in FY23, with 12.5% of this growth stemming from organic business operations.

On an operational level, the company’s earnings before interest, tax, depreciation, and amortisation (EBITDA) improved by 46% to Rs 93.3 bn in FY24. The FY24 results included revenue from acquired assets amounting to Rs 101.3 bn and an EBITDA of Rs 9.2 bn. Additionally, the company’s board recommended a dividend of Rs 0.8 per equity share.

2. Significant Fundraising Efforts

On May 29, 2024, Samvardhana Motherson announced plans to raise up to Rs 50 bn through private placement of non-convertible debentures (NCDs). This announcement coincided with the company’s Q4 earnings release, where the chairman also revealed a planned capital expenditure (capex) of Rs 50 bn for FY25.

Opting to raise funds through NCDs suggests a strategic approach, as it avoids diluting existing shareholder ownership. This, combined with the planned capex, indicates confidence in the company’s future growth prospects and a commitment to expansion initiatives.

What Lies Ahead?

Despite a challenging FY24 marked by regional risks like the Red Sea crisis, energy issues in Europe, and supply chain disruptions, Samvardhana Motherson has shown resilience. The company effectively mitigated these challenges by capitalizing on gains in other regions and vehicle segments. Strong growth in light vehicle production and faster content growth within this segment in emerging markets boosted performance.

Robust demand for medium and heavy-duty trucks in developed markets, along with continued growth in the premium light vehicle segment, provided stability. Recognizing the potential in emerging economies, Samvardhana Motherson invested a significant portion of its FY24 capex in these regions, across both auto and non-auto businesses. This focus will continue in FY25.

A key part of Its FY25 strategy involves expanding greenfield capacity. Out of the total Rs 50 bn capex planned, Rs 20 bn will be directed towards this initiative, with 70% dedicated to building non-auto facilities. In total, six new greenfield plants will be established in FY25, bringing the total to 18, with a significant focus on non-auto segments.

The company has set an ambitious target of achieving Rs 1,720 bn in revenue for FY25. Additionally, it remains committed to improving profitability and achieving a higher return on capital employed (ROCE). Its successful track record in enhancing ROCE signifies its dedication to financial optimization.

Looking beyond the automotive industry, the non-automotive business segment holds immense potential for exponential growth, particularly with evolving market trends and the development of alternative supply chains. Leveraging its expertise in the manufacturing sector, the company plans to diversify further and invest in the consumer electronics sector. This strategic move positions it to capitalize on new opportunities and solidify its status as a leading industrial player.

While the outlook appears promising, investors should carefully assess the company’s execution capabilities and the potential risks associated with such ambitious expansion plans.

Recent Performance of Samvardhana Motherson Share Price

In the past five days, Samvardhana Motherson’s share price has rallied by 10.6%. Over the past month, it has increased by 17%. So far in 2024, the stock has surged by 43.9%, and it has risen by 92.7% in the last year. The stock reached its 52-week high of Rs 152.7 on May 30, 2024, and a 52-week low of Rs 78.4 on May 31, 2023.

About Samvardhana Motherson International

Samvardhana Motherson International, often known as Samvardhana Motherson or SAMIL, is a prominent Indian multinational company in the automotive components industry. Established in 1986 and headquartered in Noida, the company has grown significantly, establishing a strong presence across multiple countries, particularly in emerging markets.

Samvardhana Motherson’s core business involves manufacturing a wide range of automotive parts, including essential components like wiring harnesses, plastic components, and rearview mirrors. Their product portfolio extends beyond these to include other vehicle components as well.