Shares of Samvardhana Motherson International, an auto ancillary firm, had a rough start to the year, plunging 33% in the first two months. The stock has held on to the same momentum by correcting 55.16% to date.
Out of the last eleven months, the stock recorded nine months with losses, with January being the biggest monthly fall with 19.61%.
Continuing its downtrend, the stock opened lower in Friday's intraday at ₹68.30 as against its previous close of ₹69. The stock dipped further to hit an intraday low of ₹66.10 and was only 8.14% away from its 52-week low of ₹61.80.
While the stock has continued to be an underperformer in the market, domestic brokerage firm Motilal Oswal picks this auto ancillary stock as its top pick for 2023, citing growth opportunities.
The brokerage noted that the company has a strong linkage to the global auto cycle, which is reflected in its market mix (76% of consolidated revenues from international business and 50% of consolidated revenues from the EU and the US) and customer mix (over 8 out of the top 10 customers are global OEMs served from outside India).
As a result, the company has been adversely impacted by global supply-side issues witnessed by the automotive industry. This is reflected in the decline in revenues in its key global businesses, it said.
However, with the easing of supply chain issues and a demand recovery, OEM production is expected to improve, which will benefit the company from this recovery as it is well entrenched with all key global OEMs in PVs and CVs, the brokerage stated.
It added that the first signs of recovery were visible in all global businesses in 2QFY23, even in the seasonally weakest quarter.
"This recovery would be supported by a strong order book for SMRPBV, which has continued to grow to EUR18.2 billion in 2QFY23 from EUR13.6 billion in 4QFY20, as well as strong competitive positioning of Motherson in all its key businesses," said Motilal Oswal.
Furthermore, the company would benefit from the strong content increase, which is being driven by mega-trends in the auto industry. The increase in content would be an important driver of growth for the company, leading to stronger growth than the underlying industry growth.
According to brokerage, this will be driven by trends such as premiumization (an increase of 10% to 200% across businesses), rising SUV mix (an increase of 50% to 200%), and electrification (an increase of 40% to over 7x).
On the strength of improvements in supply-side concerns and a correction in key commodity prices, Motilal Oswal anticipates a solid rebound in profitability for the company's key businesses.
According to brokerage estimates, the net sales, EBITDA, and PAT of Motherson are expected to register a 10%, 21.5%, and 63% CAGR, respectively, over FY22–25.
The stock trades at reasonable valuations at 17.5x/13.1x FY24E/FY25E consolidated EPS. With high operating leverage, reasonable financial gearing, and no risk of EVs, it said.
Motilal Oswal said that the stock remains their preferred pick in the auto component industry. Thus, the brokerage reiterates its "buy" rating on the stock with a target price of ₹95 per share.
For the September quarter, the company posted a 13% rise in its consolidated net profit at ₹246.4 crore, compared to a net profit of ₹216.9 crore in the year-ago quarter. The revenue from operations inched up 29.59% to ₹18,354.8 crore in Q2 FY23 from ₹14,163.5 crore in Q2 FY22.
19 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
