Samvardhana Motherson International Ltd (SAMIL), formerly known as Motherson Sumi Systems Ltd, is a prominent global manufacturer of automotive parts, headquartered in Noida, India. Established in 1975 as a trading company, SAMIL has grown into a crucial partner for Original Equipment Manufacturers (OEMs), boasting over 400 facilities across 44 countries. The company specializes in producing a wide range of auto components, including wiring harnesses, vision systems, bumpers, door panels, and instrument panels. Leveraging its extensive manufacturing expertise, SAMIL is also diversifying into the aerospace sector, as well as consumer electronics and medical equipment, showcasing its adaptability and commitment to innovation.

Well placed to benefit from ongoing automobile industry trends

The automobile industry is currently witnessing the trend of premiumisation, with buyers preferring higher-end car types such as SUVs. The global luxury car market is expected to grow at a CAGR of 7.7% over 2024-28, significantly faster than forecasted global car volume growth of 0.7%. Customers are also opting for premium variants with additional features for driving assistance, safety, comfort, and external styling. This is helping parts manufacturers increase revenues through higher “value per car” that offsets weak automobile volume outlook. SAMIL should also benefit from this trend with its own premium products such as camera-based detection systems, premium upholstery, and product capabilities from acquisitions such as sunroofs from Yachiyo.

The automobile powertrain landscape has changed considerably over the last few years with sale of electric vehicles (EVs) vastly outpacing that of internal combustion engine (ICE) vehicles. Rapidly improving battery technology and proliferation of charging stations has reduced the mental hurdle of ‘range anxiety’ for EV adoption. The share of EVs in automobile sales has grown to 18% in 2023 from just 5% in 2018. SAMIL is in a solid position to benefit from EV adoption, with EV orders making up 24% of the USD87.7bn automotive order book at 2Q25-end, and 95% of its products being powertrain agnostic.

Supportive government policies to help drive growth and diversification

The Indian automobile and parts industries are well placed to benefit from the government’s push to localise and grow the manufacturing sector. The 10-year-old Make in India initiative offers manufacturers attractive financial and infrastructure support to drive import substitution and export growth. This has helped India’s auto parts industry to grow at a CAGR of 8% over 2020-25 to reach revenues of USD80.1bn, with exports growing at a CAGR of 10% over the same period to USD21.2bn. India is SAMIL’s largest market with a contribution of 21% to FY24 revenues.

The production linked incentive (PLI) scheme is another initiative of the Indian government to encourage development of domestic manufacturing capacity for consumer electronics, specifically smartphones and laptops. Helped by this policy, mobile phone manufacturing (by value) has jumped 21x to INR4.1tn over 2015-24, while exports have multiplied 76x to INR1.2tn. The ongoing trend of ‘China+1’ as companies diversify their supply chains also provides a boost to development of the Indian manufacturing sector. SAMIL has entered into a JV with Hong Kong-based BIEL Crystal, a global supplier of smartphone glass to set up a greenfield facility in India to supply smartphone glass to Apple Inc. Operations started in 2Q25 and management expects the division to generate annual revenues of INR80-85bn in five years. SAMIL’s non-automotive revenues are already at an annual run-rate of INR30bn and management has a target to generate at least 25% revenues from non-automotive divisions in the near future.

Recent capital raise increased the headroom to invest in organic and inorganic growth

SAMIL faced a difficult Covid-19 period as FY21 revenues fell 9.7% year-on-year (YoY) and EBITDA margin contracted 60bps YoY to 7.6%. The company recovered strongly over FY22-24, with revenues rising at a 19.8% CAGR and EBITDA margins expanding 180bps. Accelerated acquisition activity also contributed to this growth, as SAMIL completed 21 acquisitions over FY21-24, adding INR101.3bn to FY24 revenues.

The company has continued to perform well with 2Q25 organic revenue growth 4-5% faster than automobile production volumes. Revenues grew 18.2% YoY to INR278.1bn led by strong growth in Modules (+27.4%) and Integrated Assemblies (+53.1%) businesses, and net profit rose 3.2% YoY to INR8.8bn. However, the results were below consensus expectations of INR281.9bn and INR9.2bn respectively. SAMIL also completed a capital raise of INR64.4bn for debt reduction, consisting of INR49.4bn of equity and INR15bn of compulsory convertible debentures. INR60bn had been repaid by November 2024, which has brought net leverage to 1.0x, well within the target level of 2.5x.

Premium valuations backed by solid fundamentals and growth opportunities

SAMIL is currently trading at a P/E of 28.3x and an EV/EBITDA of 10.4x, which is largely in line with the 5-year historical median of 30.4x and 9.9x respectively. However, the stock is expensive compared to its peers, which are trading at average multiples of 15.9x and 8.8x respectively. The stock has corrected recently amidst the wider sell-off in the Indian market and after the weaker-than-expected 2Q25 results. However, the street still has a favourable view, with 16 out of 20 analysts on a Buy or Outperform rating compared to just 1 Sell. While brokers have lowered their target prices recently citing the weakening auto industry outlook and the 2Q25 miss, the current average target price of INR194 still implies a decent upside potential of 19.2%. Despite management’s standing policy of distributing 40% of consolidated profits as dividends, recent distributions have averaged 25% over the last three years and analysts expect distributions to remain at these levels over the next three years.

In our view, the recent deleveraging has set SAMIL up for the next stage of growth. Management’s FY25 revenue target of USD36bn looks out of reach, but the company should outperform the auto sector over the medium-term as the new sectors of aerospace, consumer electronics, and medical equipment start scaling up and contributing more. SAMIL is currently developing 19 greenfield plants of which 5 are operational and 8 others will come online in 2H25. Further growth boost can also be expected from acquisitions, where management has a good track record. SAMIL has guided acquisitions to contribute at least INR145bn in FY25.

On the other hand, the premium valuations could constrain short-term returns, especially if the mood in the Indian markets remains gloomy. Other risks come from rising material costs that could impact margins, and from expansion into unrelated areas of consumer electronics and medical equipment where management does not have experience or expertise, creating chances of execution mistakes.