Brokerage firm JM Financial believes Samvardhana Motherson International stock can jump to the level of ₹115, up 46 percent from its January 10 closing price of ₹78.80 on BSE, in the medium to long term.
The shares of Samvardhana Motherson International have fallen 46 percent in the last one year. The stock hit its 52-week high of ₹135.91 on January 12, 2022.
As the company's recent ‘Vision 2025’ mid-term review signalled its intent to reach close to $36bn revenue by FY25, JM Financial believes the worst is largely behind for the company.
JM Financial pointed out that due to the challenges such as Covid-19, chip shortages, inflation, etc., global light vehicle (LV) production declined from about 93 million units in FY19 to about 76.5 million units in FY22.
Owing to these challenges, the brokerage firm pointed out, Samvardhana Motherson’s topline remained range bound between nearly $9bn-10 billion (during FY19-22). Also, the unattractive valuation of global auto ancillary companies restricted immense inorganic opportunities.
"With Covid-19 mostly behind, passenger vehicle production is expected to recover from ebb. Commentaries from some of its key customers suggest strong demand tailwind led by low inventory, premiumization, healthy order-book and receding supply chain issues are expected to benefit the company," said JM Financial.
The brokerage firm believes the company may be one of the key beneficiaries of the premiumisation trend in the global auto industry.
JM Financial said the company is towards the end of its Capex cycle and investments are in place to support medium-term growth.
"Receding chip shortages and easing supply constraints are also likely to drive normalisation in working capital going ahead. Overall, the company is focusing on improving ROCE (return on capital employed) led by (1) lower Capex intensity, (2) normalisation of working capital, (3) focus on improving profitability, and (4) higher operating leverage," said JM Financial.
What should you do in the short term?
The stock can be bought in small tranches for the short term but the trend will turn weak if it falls to levels near ₹70.
Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher observed that the stock after a short consolidation phase near ₹75-76 zone has given a breakout to move ahead and is indicating strength.
Parekh said that the stock has scope for further upward movement in the coming days, but only a decisive move above the significant 200DMA level of ₹79.60 would further strengthen the trend and can trigger a fresh further upward move with targets anticipated at around ₹86-89 levels. The near-term support zone would be ₹75; below this, the trend can be slightly weak.
Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers pointed out that for the last three months, the stock has been making higher highs and higher lows structure.
Patel added that recently it broke its previous swing high of ₹76.30 along with the six-month-old trendline. It is currently sustaining above this level, hinting upside in the counter.
"Daily DMI is in bullish mode also it broke its previous swing, indicating bullishness in the counter. One can buy in small tranches at around ₹76-77 and another around ₹73-74. Target is seen around ₹88 and stop-loss would be ₹69," said Patel.
According to a MintGenie poll, an average of 19 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.