Samvardhana Motherson capex set to grow by 40% in FY24

Leading specialised automotive component manufacturer Samvardhana Motherson International (SAMIL) recently published stellar results for fiscal 2022-2023, with sales up 23 percent year-on-year to Rs 78,701 crore and profit skyrocketing by a huge 193 percent to Rs 1,496 crore. With car production picking up, led by chip supply improvement and SAMIL catering more toward higher value-added cars, revenue growth continued to be ahead of volume growth.

The Noida-based company has also unveiled its strategy for the current year. As a first step, SAMIL has decided to significantly increase its investment spending in the financial year 2023-2024. The company’s capex is in fact set to grow from Rs 2,183 crore to Rs 3,000 crore this year, equivalent to an increase of over 40 percent. It is worth noting that, before the pandemic, the group’s investment budget remained steady at Rs 2,000 crore a year.

In a recent call, SAMIL’s management also highlighted that the company is going through massive diversification, both in terms of product mix and footprint. According to Laksh Vaaman Sehgal, Vice Chairman at Samvardhana Motherson Group, SAMIL’s overall automotive book business stood at US$ 70 billion (approximately Rs 5.7 lakh crore) out of which 20 percent is coming from pure electric vehicle platforms. The company is planning to execute this complete business plan in the next five-six years. For perspective, the book business is the sum of the order books and the businesses currently in production. 

SAMIL’s total India business, including subsidiaries, stood at Rs 15,000 crore in the financial year 2021-2022, which has grown over 25 percent year-on-year. “With this growth and purchase of related land and building the capex for the next year, it is going to increase to Rs 3000 crore this year. We also continue to focus on deleveraging. Our net debt to  Earnings before interest, tax, depreciation and amortisation (EBITDA) ratio has further decreased from 1.8X in December 2022 to 1.4X in March 2023,” Sehgal said over the call. 

However, the lower or entry level car segment is still showing sluggish growth, Kunal Malani, Chief Financial Officer, SAMIL said during a conference call. “The lower end of the market is still under pressure. But our product mix is aiding growth as we are working with OEMs on premium models and SUVs which are seeing good growth,” he added. 

To cater to the existing and future demands of customers, especially in higher growth and emerging economies like India, the company is planning to set up seven new facilities in this fiscal year. “Six of them will be in India - three for automotive business and the rest for emerging and non-automotive domains,” Sehgal said. 

Strong quarterly growth

During the January-March quarter, SAMIL reported strong performance with over a five-fold increase in its net profits from continuing operations at Rs 699 crore as compared to Rs 130 crore in the corresponding quarter of last year.

Meanwhile, the company’s revenues grew 30 percent year on year to Rs 22,476 crore versus Rs 17,241 crore in the same quarter of last year. Its EBITDA is 60 percent higher at Rs 2,021 crore, while EBITDA margins improved 170 bps to 9 percent. 

On the outlook, car volumes are still lagging 20 percent behind the pre-COVID levels, the CFO said. However, he noted that the production ramp-up is happening actively and that the industry is likely to grow in the coming months.

Sehgal concluded by saying that the order book aligned for electric vehicles is also witnessing significant acceleration as many new models are coming up. “Since a significant part of the new order book is for electric vehicles, we expect this space to accelerate further on the back of rapid adoption. We aspire to do better than the average expectation in the market,” he added. 

In the last 14 months, the company has made seven strategic acquisitions, potentially adding 8,000 employees and clocking US$ 4.9 billion and US$ 1.1 billion gross and net revenues, respectively, post closure. 

Brokerage firm ICICI Securities expects SAMIL to become net-debt-free by FY25 with an equity base of Rs 265 billion on books. "This would easily give SAMIL scope for adding debt of USD 2 billion - USD 2.5 billion for acquisitions and keep leverage on books under control. At 1.5-2x asset turns, we believe, SAMIL can add close to USD 3 billion- USD 4 billion of inorganic revenue over and above our estimated organic revenue of about USD 13 billion by FY25, taking overall revenue potential to USD 16 billion-17 billion," the brokerage firm added.