Why Samvardhana Motherson Share Price is Rising

Like the old saying, "a rising tide lifts all boats," the booming auto industry has propelled its ancillary companies to new heights.

Fueled by surging demand, the auto sector has witnessed significant growth, and top auto companies have been riding this wave. Reflecting this positive momentum, the auto index has surged 64% in the past year.

Take a look at the chart below:

The ripple effect didn't stop there. The auto ancillary sector has also been swept up in this surge, with all stocks experiencing significant gains.

Samvardhana Motherson, a major player in the automotive space, is a prime example. Its share price witnessed an impressive rise of 92.7% over the past year, with a further 43.9% growth recorded so far in 2024.

This stellar performance has garnered renewed investor interest, evident in the recent 10% rally in their share price over the past five days.

What's driving the rally in Samvardhana Motherson share price?

Let's find out...

#1 Strong Financial Performance

The auto components maker posted an 80.8% jump in its total net profit to Rs 30.2 billion (bn) in FY24 compared to Rs 17 bn in FY23. The surge in profit was driven by higher sales volume.

The company's total revenue from operations also rose 28% to Rs 986.9 bn during FY24 compared to Rs 787.9 bn reported in FY23. 12.5% of this revenue growth came from organic business.

On operational level, the company's earnings before interest, tax, depreciation, and amortisation (EBITDA) improved 46% to Rs 93.3 bn in FY24.

It should be noted that the FY24 results include revenue from acquired assets of Rs 101.3 bn and EBITDA of Rs 9.2 bn.

The company's board also recommended a dividend of Rs 0.8 per equity share while announcing results.

Here's a summary of the financial performance of the company.

Samvardhana Motherson Financial Performance

#2 Big Fund Raising

On 29 May 2024, the auto ancillary company announced a plan 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.

The decision to raise funds through NCDs suggests a strategic approach.

Unlike issuing new shares, NCDs don't dilute existing shareholder ownership. This, coupled with the planned capex, signals confidence in the company's future growth prospects and its commitment to fueling expansion initiatives.

What Next?

Despite a challenging FY24 riddled with regional risks like the Red Sea crisis, energy woes in Europe, and supply chain disruptions, Samvardhana Motherson emerged resilient.

The company skillfully mitigated these challenges by capitalising on gains in other regions and vehicle segments. A strong pickup in light vehicle production and faster content growth within this segment across emerging markets fueled its performance.

Additionally, robust demand for medium and heavy-duty trucks in developed markets, along with continued growth in the premium light vehicle segment, provided stability.

Recognising 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 aspect 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 a notable 70% dedicated to building non-auto facilities.

In total, 6 new greenfield plants will be established in FY25, bringing its 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. Furthermore, it remains committed to improving profitability and achieving a higher return on capital employed (ROCE). Its successful track record in improving ROCE signifies its dedication to financial optimization.

Samvardhna Motherson's ROCE Improvement (2021-2024)

Looking beyond the automotive industry, its non-automotive business segment has an immense potential for exponential growth, particularly with evolving market trends and the development of alternative supply chains.

Given, its expertise in the manufacturing sector, the intends to further diversify and invest in the consumer electronics sector. This strategic move positions it to capitalise on new opportunities and solidify its position as a leading industrial player.

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

How Samvardhana Motherson Share Price has Performed Recently

In the past five days, Samvardhana Motherson share price has rallied 10.6%. In the last month it is up 17%.

In 2024 so far, it surged 43.9% and 92.7% in the last year.

The stock touched its 52-week high of Rs 152.7 on 30 May 2024 and a 52-week low of Rs 78.4 on 31 May 2023.

About Samvardhana Motherson International

Samvardhana Motherson International, often shortened to 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 from its roots to become a major player with a strong presence across multiple countries, particularly in emerging markets.

Samvardhana Motherson's core business lies in 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 encompass other vehicle components as well.

To know more about the company, check out Samvardhana Motherson company fact sheet and Samvardhana Motherson's quarterly results.

For a sector overview, read our auto ancillaries sector report.

You can also compare Samvardhana Motherson with its peers on our website.

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