Jefferies upgrades Samvardhana Motherson; brokerages see up to 30% upside potential
Shares of SAMIL rose more than 4 per cent to Rs 97.03 on Thursday, hitting its new 52-week highs, commanding a total market capitalization close to Rs 65,000 crore.
- Jul 13, 2023,
- Updated Jul 13, 2023 12:47 PM IST
Jefferies has upgraded Samvardhana Motherson International (SAMIL) with a revised target price. Brokerages see a potential upside of up to 30 per cent in the stock after its recent agreement with Yachiyo, a subsidiary of Honda Motors, and improving earnings trajectory.
After four tough years, SAMIL's operating performance has started to improve in FY23, and we see its EBITDA doubling and EPS trebling over FY23-26E, led by supportive operating environment and profit accretion from acquisitions, said Jefferies in its latest report.
Yachiyo Industry is a Tokyo-listed entity, which is engaged in production of automobile parts such as sunroofs, fuel tanks and resin products, will be value accretive from the first year itself. The acceleration in M&A activity may expand customer, product and geography base, which would augur well for Samvardhana Motherson, said analysts.
Shares of SAMIL rose more than 4 per cent to Rs 97.03 on Thursday, hitting its new 52-week highs. The company was commanding a total market capitalization close to Rs 65,000 crore. The stock has gained about 55 per cent in the current financial year, while it is up 26 per cent in the current calendar year.
The global brokerage had downgraded the stock to Underperform in June 2021 and had a cautious view until January 23, when it upgraded it to Hold. Despite a strong rise in the current year 2023, stock has underperformed Nifty50 by 40 per cent in the last 2 years.
Yachiyo Industry's 4W segment reported turnover of 116.1 billion Japanese yen in FY23. Yachiyo's 4W business has a book value of 59.2 billion Japanese yen as on March 31. The acquisition by Samvardhana Motherson International will be done via a wholly-owned subsidiary SMRP BV.
SAMIL has announced two large acquisitions in 2023, SAS and 81 per cent stake in Yachiyo's 4W business, which it expects to complete in 2QFY24 and 1QFY25 respectively, said Jefferies. It estimates the two acquisitions together can add 15 per cent and 19 per cent to SAMIL's FY25E revenue and EBITDA, respectively.
Another brokerage firm JM Financial sees this deal as a strategic positive for SAMIL’s long-term growth. It believes the deal allows the company to penetrate deeper with Honda and help foray into the global sunroof and fuel tank market, JM Said. The acquisition comes at an attractive valuation, which will be funded through internal accruals.
"Its 15x FY25E PE is reasonable. We upgrade to 'buy' with a target price of Rs 115, valuing India/overseas businesses at 28 times and 13 times, respectively FY25E PE. Potential stake sale by Sumitomo Wiring Systems could have some overhang," it added further.
"We continue to maintain our positive stance on SAMIL. Easing supply chain, sustained recovery in global auto sales, higher operating leverage and improving profitability is expected to drive ROCE going ahead," said JM Financial suggesting an upside of about 30 per cent in the stock.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
Also read: Hot stocks on July 13, 2023: Federal Bank, TCS, Patanjali Foods, Brightcom Group, others
Jefferies has upgraded Samvardhana Motherson International (SAMIL) with a revised target price. Brokerages see a potential upside of up to 30 per cent in the stock after its recent agreement with Yachiyo, a subsidiary of Honda Motors, and improving earnings trajectory.
After four tough years, SAMIL's operating performance has started to improve in FY23, and we see its EBITDA doubling and EPS trebling over FY23-26E, led by supportive operating environment and profit accretion from acquisitions, said Jefferies in its latest report.
Yachiyo Industry is a Tokyo-listed entity, which is engaged in production of automobile parts such as sunroofs, fuel tanks and resin products, will be value accretive from the first year itself. The acceleration in M&A activity may expand customer, product and geography base, which would augur well for Samvardhana Motherson, said analysts.
Shares of SAMIL rose more than 4 per cent to Rs 97.03 on Thursday, hitting its new 52-week highs. The company was commanding a total market capitalization close to Rs 65,000 crore. The stock has gained about 55 per cent in the current financial year, while it is up 26 per cent in the current calendar year.
The global brokerage had downgraded the stock to Underperform in June 2021 and had a cautious view until January 23, when it upgraded it to Hold. Despite a strong rise in the current year 2023, stock has underperformed Nifty50 by 40 per cent in the last 2 years.
Yachiyo Industry's 4W segment reported turnover of 116.1 billion Japanese yen in FY23. Yachiyo's 4W business has a book value of 59.2 billion Japanese yen as on March 31. The acquisition by Samvardhana Motherson International will be done via a wholly-owned subsidiary SMRP BV.
SAMIL has announced two large acquisitions in 2023, SAS and 81 per cent stake in Yachiyo's 4W business, which it expects to complete in 2QFY24 and 1QFY25 respectively, said Jefferies. It estimates the two acquisitions together can add 15 per cent and 19 per cent to SAMIL's FY25E revenue and EBITDA, respectively.
Another brokerage firm JM Financial sees this deal as a strategic positive for SAMIL’s long-term growth. It believes the deal allows the company to penetrate deeper with Honda and help foray into the global sunroof and fuel tank market, JM Said. The acquisition comes at an attractive valuation, which will be funded through internal accruals.
"Its 15x FY25E PE is reasonable. We upgrade to 'buy' with a target price of Rs 115, valuing India/overseas businesses at 28 times and 13 times, respectively FY25E PE. Potential stake sale by Sumitomo Wiring Systems could have some overhang," it added further.
"We continue to maintain our positive stance on SAMIL. Easing supply chain, sustained recovery in global auto sales, higher operating leverage and improving profitability is expected to drive ROCE going ahead," said JM Financial suggesting an upside of about 30 per cent in the stock.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
Also read: Hot stocks on July 13, 2023: Federal Bank, TCS, Patanjali Foods, Brightcom Group, others