Shares of Samvardhana Motherson, the major auto component, fell 6.93 percent to a low of Rs 64.40 on BSE amid high volumes. Against a fortnightly average of 8.98 lakh shares, a total of 14.42 crore shares had changed hands on BSE at 9:35 am. On NSE, a total of 4.38 crore shares changed hands, data showed. The deal was executed at an average of Rs 65 per share.
According to a media report, Japan-based Sojitz Corp on Monday said it would sell a 1.9 percent stake in an auto parts company through a block deal. The deal size for the sale was set at Rs 824 crore.
The Motherson group recently reorganized itself and changed the name Motherson Sumi Systems to Samvardhana Motherson International.
Samvardhana Motherson International (formerly Motherson Sumi) primarily serves the global passenger vehicle (PV) industry with wiring harnesses, vision systems (mirrors) and plastic body panels as key product lines.
Financial
While the company’s profitability and business performance have declined in recent quarters due to inflationary pressures and sub-optimal declines in OEMs due to supply-side constraints (EBITDA margins were 6.5 percent in Q1FY2023, down 7.1 per year) cents in Q4FY2022), ICRA notes that the company has taken several cost containment initiatives and is in talks with its customers to get compensation for inflationary pressures/lower offtake.
SAMIL’s financial performance continues to be subject to challenges such as cyclicality, increasing regulatory intervention and fierce competition seen by auto companies in key developed markets, particularly Europe (accounting for approximately 40 percent of the company’s revenues). In addition, the overall high revenue dependence on European OEMs exposes the company to a negative impact on demand due to the ongoing geopolitical conflict in the region and the imposition of trade tariffs.
However, SAMIL’s manufacturing footprint is spread across approximately 269 locations (close to customers) around the world, and its proven ability to adapt to changing customer requirements in different regions mitigates risk to some extent, the rating agency said.
Should you invest?
According to Emkay Global, the company will report low revenue growth in the September quarter due to its notable foreign exposure. The company has lowered its target price for the share from Rs 95 to Rs 90 but has a ‘buy’ recommendation for the stock.
ICICIdirect recently had coverage on this stock. “Given the macro-uncertainty in global markets versus more stable domestic demand, we are dropping cover from SAMIL (which is a play on a recovery in the global automotive sector) and would advise investors to move their stake to Motherson Sumi. Wiring India (MSWIL),” the company said in a Sept. 29 note.
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