Fundamental Analysis of Samvardhana Motherson International: Last year Motherson Sumi Systems announced the demerger of its DWH business. Later, the demerged company was listed. In addition to this, Motherson Sumi was merged its with parent and its name was changed to SAMIL. With so much happening at SAMIL, how can we as investors resist not looking at the stock?
In this article, we shall attempt to perform a fundamental analysis of Samvardhana Motherson International (SAMIL), the larger of the two listed Mortherson Group companies.
Fundamental Analysis of Samvardhana Motherson International
We’ll start by getting ourselves acquainted with the history and business of the company, followed by an industry overview. Later, a few sections are devoted to revenue and net profit growth, return ratios, and debt analysis. A highlight of the future plans and a summary conclude the article at the end.
Company Origins, Demerger & Present Structure
Samvardhana Motherson International Ltd. or SAMIL dates its history back to 1986. Motherson Sumi Systems Ltd. (MSSL) was incorporated as a joint venture company between the Motherson Group, India and Sumitomo Wiring Systems or SWS, Japan.
The JV used to manufacture wiring harnesses for Maruti Udyog. It was listed on the Indian stock exchanges in 1993. Over the years, MSSL grew into a global OEM supplier of wiring harnesses, vision systems, modules & polymer products, elastomers, and other auto-ancillary products.
In the latest development, the domestic wiring harness (DWH) business of MSSL was demerged from the company in 2021. The demerged business was subsequently listed on the exchanges in March 2022 as Motherson Sumi Wiring India (MSWIL).
At the same time, demerged MSSL was merged with its parent. After these developments, the name of MSSL was changed to Samvardhana Motherson International Limited (SAMIL). Thus, that is how the SAMIL name came into being after the above-mentioned developments.
Presently, SAMIL holds a 33.4% stake in MSWIL, the demerged entity. Additionally, it owns 100% of Samvardhana Motherson Automotive Systems Group BV (SMRP BV) which runs other business segments.
The need for the demerger was long due. It was done because Sumitomo Wiring Systems of Japan wanted to keep its involvement focused on the wiring harnesses business in India. It was the initial business interest in 1986 which led to the establishment of the JV itself.
We now know about the recent developments at the Motherson Group. In the next section, we understand the business of SAMIL and the scale at which it operates.
Company Overview & Business
Samvardhana Motherson International manufactures and supplies a broad range of auto-ancillary products to all major auto OEMs. The company operates 300 facilities across 41 countries making it a global auto-ancillary player. It has market leadership across multiple product units.
SAMIL’s highly diversified product portfolio includes automotive rear vision systems, lighting systems, electrical distribution systems, precision metals and modules, fully assembled vehicle interior and exterior modules, moulded plastic parts and assemblies, injection molding tools, electronics, industrial IT solutions, telematics, and more.
The image below depicts the organization of various business units of SAMIL.
Source: Samvardhana Motherson International Annual Report FY22
As for the contribution of different units to revenue, the modules & polymers division accounted for 49.3% of the revenues. This was followed by a wiring harness segment revenue share of 30.6%. Vision systems brought 18.8% of the income making it the third largest business unit for SAMIL.
We got to know about the recent developments at the Motherson Group and the businesses of the company. In the next section, we look at the auto-ancillary industry as part of our fundamental analysis of Samvardhana Motherson International.
Industry Overview
The auto-ancillary stocks derive their demand from the auto industry. Samvardhana Motherson International earned 82% of its revenues overseas in FY 2021-22. Therefore, it makes sense for us to look at the global auto industry as well and not just the Indian auto landscape.
Global Auto Industry Analysis
The manufacturing of light vehicles (LV) saw a decline from 92 million (Mn) units in FY19 to 76 Mn units in FY22. This was on account of multiple reasons including chip shortages, the Covid-19 pandemic, and geopolitical disruptions. Along the same lines, medium and heavy-duty (M&HD) truck production registered a drop to 2.2 million in FY22 from 2.5 Mn in FY22.
Different agencies expect global production numbers to improve to 94 Mn units by FY26 for LV and 2.6 Mn for M&HD respectively. The volume growth projections are based on strong demand and the easing of chip shortages.
Indian Auto Industry Analysis
As for the Indian automobile industry, it has been on a downturn even before the pandemic hit. The sector has seen degrowth in the last few years. Presented below are the production numbers from the Society of Indian Automobile Manufacturers (SIAM).
(figures in thousands)
| Category | FY 2018-19 | FY 2019-20 | FY 2020-21 | FY 2021-22 |
| Passenger Vehicle | 4,028 | 3,425 | 3,062 | 3,651 |
| Growth (PV) | nil | -15% | -11% | 19% |
| Commercial Vehicle | 1,112 | 757 | 625 | 806 |
| Growth (CV) | 24% | -32% | -17% | 29% |
| Three-wheelers | 1,269 | 1,133 | 614 | 758 |
| Growth (3-W) | 24% | -11% | -46% | 23% |
| Two-wheelers | 24,500 | 21,033 | 18,350 | 17,714 |
| Growth (2-W) | 6% | -14% | -13% | -3% |
But the data also tells that except for two-wheelers, the other segments of the Indian industry bounced back in the recent fiscal.
Market experts say that after years of drought, the Indian auto industry is at the cusp of a boom as demand is back. Going forward, rising disposable incomes, better monsoons, easing inflation, stable fuel prices and commodity cost decline will bring growth to the automotive industry in India.
Samvardhana Motherson International – Financials
Revenue & Net Profit Growth
In this section, we’ll cover the revenue and net-profit growth of the company for our fundamental analysis of Samvardhana Motherson International.
We have taken figures for continued operations for the last two fiscals from the FY22 annual report of SAMIL. The continued operations represent businesses other than the domestic wiring harness. The data previous to FY 2020-21 has not been mentioned here because pre-demerger results are not comparable with post-demerger results.
In the table below we can observe that company’s net profit took a hit in FY22 when compared to FY21. This is because of a higher tax expense in the recent fiscal.
| Fiscal Year | Revenue (Rs. Cr.) | Net Profit (Rs. Cr.) |
| 2021-22 | 64,031 | 817 |
| 2020-21 | 57,599 | 1,243 |
Profit Margins: Operating and Net
Moving on to the analysis of the profit margins of SAMIL, the company has struggled over the last few years on a consolidated basis. The data in the table below highlights the thin operating profit margin and net profit margin of Samvardhana Motherson’s business.
| Fiscal Year | NPM (%) | OPM (%) |
| 2021-22 | 1.28 | 3.14 |
| 2020-21 | 2.16 | 2.89 |
Debt/Equity & Interest Coverage
Samvardhana Motherson International reduced its debt-to-equity ratio from 0.96 in FY21 to 0.69 in FY22. Similarly, the interest coverage ratio marginally increased from 1.29 to 1.62 during the last fiscal year.
We can observe that even even though the debt-to-equity ratio is below 1, the interest coverage is alarmingly low.
| Fiscal Year | Debt/Equity | Interest Coverage |
| 2021-22 | 0.69 | 1.62 |
| 2020-21 | 0.96 | 1.29 |
Return on Capital Employed & Return on Equity
Having covered revenue, net profit, profit margins, and debt figures; we have now arrived at the return ratios for our fundamental analysis of Samvardhana Motherson International.
We can note that both the return ratios: return on equity (RoE) and return on capital employed (RoCE) fell sharply in FY22 on account of lower profit after tax because of higher tax expense.
Additionally, the RoE fell sharper than the RoCE pointing at the high tax expense and the interest cost of the company.
| Fiscal Year | RoCE (%) | RoE (%) |
| 2021-22 | 5.90 | 5.22 |
| 2020-21 | 7.60 | 14.18 |
Samvardhana Motherson International – Future Plans
So far we only looked at the business & industry of the company as part of our fundamental analysis of SAMIL. In this section, we take a look at what lies ahead for the investors of the auto-ancillary stock:
- As part of its ‘Vision 2025’, the management aspires to achieve $ 35 billion in revenues by FY 2024-25 with a high RoCE of 40%.
- It further plans to diversify its operations making no customer, component or geography contribute over 10% of the total revenues.
- Additionally, Samvardhana Motherson has planned to scale its new divisions’ business more such that it brings 25% of income for the company.
- Furthermore, on the earnings distribution front, the management expects almost 40% of the consolidated profit will be distributed as dividends from FY25.
Samvardhana Motherson International – Key Metrics
We are now almost at the end of our fundamental analysis of Samvardhana Motherson International. Let us take a look at the key ratios of the auto-ancillary stock.
| CMP | ₹72.2 | Market Cap (Cr.) | ₹49,000 |
| EPS | ₹1.46 | Stock P/E | 49.45 |
| ROCE | 5.9% | ROE | 5.2% |
| Face Value | ₹1.0 | Book Value | ₹30.60 |
| Promoter Holding | 68.2% | Price to Book Value | 2.36 |
| Debt to Equity | 0.69 | Dividend Yield | 0.58% |
| Net Profit Margin | 1.28% | Operating Profit Margin | 3.14% |
In Conclusion
We are now at the end of our fundamental analysis of Samvardhana Motherson International. Going forward, improvement in margins, debt reduction and a rise in return ratios will be key triggers for the stock.
In your option, is SAMIL all set to ride the auto tide in the coming years? Or have we missed any pitfalls in our analysis? How about you let us know in the comments below?
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