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Investec has downgraded Samvardhana Motherson to ‘Hold’, with a price target of ₹195 per share, implying a 3% upside from the stock’s closing price on Thursday.
The brokerage wrote in its note that weakness in the European Union region is reining in SAMIL’s organic growth. The commentary from major European OEMs like VW, Mercedes, and BMW has failed to inspire confidence in future growth prospects.
Investec has slashed its FY25-26 earnings estimates by 3-5%.
The stock is up 85% year-to-date (compared to Nifty’s 15%), partly due to optimism surrounding the company’s entry into the consumer electronics business.
Scenario analysis suggests this new business could add ₹30 per share to the sum-of-the-parts valuation, but Street seems to be overly bullish
The stock is currently trading at 30 times and 25 times its FY25 and FY26 earnings per share estimates, compared to its 5-year average of 23 times.
Meanwhile, Citi has assigned a ‘Sell’ recommendation on Samvardhana Motherson, with a price target of ₹
105 per share.
The price target ascribed by Citi implies a potential downside of nearly 45% from the stock’s last closing levels.
According to Citi, the recent trends in auto volumes across key global markets have been weak, with OEMs, especially in the EU, lowering their volume guidance.
The foreign brokerage mentioned that the continued news of weak demand and build-up of inventory levels could result in the stock’s underperformance in the near term.
The Board of Directors has approved the raising of funds through various methods.
While details are awaited, additional debt could strain the balance sheet, which already has a net debt of ₹16,000 crore (including leases).
If funds are raised through equity, there could be EPS dilution.
Current valuations at 38/32x FY25/26EPS provide little comfort and appear to price in potential growth in the non-automotive business.
Shares of Samvardhana Motherson are currently trading 2.27% lower at ₹184.57. The stock has risen 80% so far this year.
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