You’d think that a company present in over 40 countries and is a global leader in everything electric, electronic or plastic that exists in a car (mirrors, cameras and even sunroofs) would have a bulletproof stock - but, unfortunately, that isn’t the case!
Samvardhana Motherson (SAMIL), a literal mother-son venture, has showcased a 3x growth in revenues and 2x growth in profits over the past decade, tending to clients like Mercedes, BMW, Porsche and Audi in the process - but its stock price is a different story.
While the stock is up 4x in the past decade, the stock has been beaten down by contingencies at every point - almost like the story of the Greek legend Sisyphus who was condemned to rolling a boulder up a hill, only for it to be rolled back down and for him to start the process all over again!
The stock is on one of its uptrends right now (~2x in the last year), and while one might assume the worst based on this decade-long trend of bad luck, this time around might just be different for SAMIL!
A Streak of Bad Luck
Despite its good fortune as a business, SAMIL’s share price has had 3 distinct moments in the last decade where investors lost faith, with fault lying somewhere between “the company messed up” and “this was so random”.
While these may seem like one-off contingencies (and they are), the company is setting out to try and cushion itself to ensure these things don’t happen again.
Why Is This Time Different?
Technically, none of the above reasons for the stock price falling was SAMIL’s fault, but it did lead the company to the realisation that it needs to make some changes to its business:
If the company continues to work on these metrics, it could safeguard itself from the contingencies it faced in the past and prevent some in the future, solidifying investor confidence.
Is the Company Solid?
The Sehgal family has been at the reigns since the 80s, building SAMIL into the behemoth that it is, and might just have a better trajectory in place for its future:
The family’s ambitious vision has always led the company to great heights, from 1 country to 40, from 1 client to 30, and from 1 part of the car’s mechanics to almost everything barring the engine and chassis!
Its stellar ability to acquire companies (some of them distressed) and then turn them around is a testament to its genius. With 15 out of its 40 total acquisitions undertaken in the last year alone, SAMIL will seamlessly integrate them into the entity, boosting growth going forward
Furthermore, with an order book of Rs. 6.5 lakh crore (8x FY23 revenue), of which a quarter is attributed towards EVs, the company almost assures a high growth phase of a 12% revenue CAGR over the next 5 years - assuming nothing random happens again!
Hence, while the Japanese promoters Sumitomo are reducing their stake in the company, they have clearly stated in the media that their current 9% stake will not waver and that they are merely taking a step back from active management as they have full faith in the Sehgal family’s capabilities.
With the stock currently trading at around a 1-year forward PE of 24x (in line with the industry average and a much more palatable multiple compared to the 45x quoted during the restructure), SAMIL’s price looks attractive as well.
Hence, with long-term growth factors, downside protection by tweaking their business, and attractive valuations combined, SAMIL surely deserves a spot on our watchlists!
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Alphaware Advisory Services Private Limited [SEBI RIA Registration No: INA000015747] [Validity of registration: February 08, 2021-Perpetual] [BASL ID: 1610] [Address: 1 Janki Centre, Off Veera Desai Road, Andheri West, Mumbai 400053] [Principal Officer details: Mr. Sagar Lele, Email id: sagar.lele@rupeeting.com, Contact No. +91-9769770046] [Compliance Officer details: Mr. Sagar Lele, Email id: sagar.lele@rupeeting.com, Contact No. +91-9769770046] [Grievance Officer details: Mr. Sagar Lele, Email id: sagar.lele@rupeeting.com, Contact No. +91-9769770046] [Platform Partner: smallcase] [CIN – U74999MH2019PTC320573] [GST No: 27AARCA8847R1ZF]
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