With small- and mid-caps trading expensive with pockets of exuberance, large-caps offer relative comfort, considering their scale and diversified operations. One such large-cap in the auto components space is Samvardhana Motherson International (SAMIL). At its current market-cap of ₹1.1 lakh crore, it is second only to the largest auto components stock by market-cap – Bosch. In fact, the two are separated by a thin margin of about ₹1,200 crore.
Being an auto parts player with global exposure, the shares of SAMIL hit a 52-week low of ₹72 in the first week of April, when tariffs were wreaking havoc. This is a drop of 50 per cent from its all-time high of ₹145 recorded in late-September 2024. Since then, the stock has recovered almost half this dip.
Business-wise, it is challenging times for the company. Since it is a beneficiary of demand for vehicles across the world, its prospects, in fact, depend on the volume growth of global OEMs. In Q1 FY26, global light vehicle (cars) production volume grew a paltry 2 per cent, while that of commercial vehicles remained flat. The situation in Europe and North America was even worse. This reflected in the company’s weak numbers in Q1, as Europe and North America make 34 per cent and 22 per cent of revenue. This could continue to be the case through FY26.
However, all is not lost for SAMIL. Auto markets in India (20 per cent) and China (11 per cent) are relatively doing well, although not robust as one would desire. Even in the developed markets, monetary policy has been eased in favour of growth. This could revive demand there.
SAMIL follows a strong inorganic growth strategy, including acquiring and turning sick units around. In the last couple of years, the company has acquired more than 15 units globally, which could scale up in the coming quarters. Even on the organic side, the company has 11 greenfield facilities (across wiring harness, modules and polymer products, elastomers, lighting and electronics, consumer electronics and aerospace divisions), expected to be commissioned at various stages of FY26 and FY27.
Further, the company has been diversifying away from the automotive sector to areas such as aerospace and consumer electronics, which are growing faster than the company’s core revenue.
The stock trades at a trailing PE ratio of 34x, lower than the five-year median of 38x (median is considered over mean to avoid distortion caused by brief periods of extremely low to negative earnings). On a forward basis, it trades at 22x its likely per share earnings in FY27. Note that while earnings growth in FY26 could be modest, much of the growth is expected to come only in FY27. Absence of a revival in the underlying auto market remains a key downside risk. Considering these, long-term investors can keep the stock in their radar and accumulate on dips of 15 per cent or more, as there is a better margin of safety at those levels.
What it does
SAMIL is a global supplier of auto parts for OEMs, with a revenue of ₹1.1 lakh crore or about $13.5 billion (FY25). It operates in 43 countries with over 380 facilities. It has a rich history of acquisitions and partnerships, and currently has close to 300 subsidiaries and 20 joint ventures and associates. For context, the standalone revenue accounts for just about 10 per cent of the consolidated revenue. The share of revenue by business divisions and geography can be found in the chart. For better understanding of the product portfolio, it is recommended that readers pay a quick visit to the company’s website. It can be appreciated that almost all of the product portfolio is powertrain agnostic.
OEMs prefer co-located suppliers or those in close proximity. Hence, SAMIL follows the strategy of local manufacturing rather than exporting out of India. Hence, almost all marquee OEMs in major auto markets of the world are clients of the company. This strategy is a key competitive advantage, as it can help circumvent disruptions such as tariffs and ensure a smooth supply chain for SAMIL’s customers. Exports from India to the US are negligible at less than a per cent. Even supplies to US OEMs from Mexico (key hub for US OEMs) are free from tariffs, as these are USMCA (US-Canada-Mexico Agreement) compliant, per the management.
Decent financials
Between FY19 (pre-Covid) and FY25, SAMIL’s revenue and net profit have grown at compounded rates of 10 per cent and 15 per cent. This is decent, given the company’s global exposure and not just confined to fast-growing emerging markets. In the last three years, revenue and profit have grown 21 per cent and 63 per cent (CAGR). Return on average capital employed (EBIT divided by average capital employed; capital employed being sum of shareholders’ funds and long-term borrowings) stands at 15.3 per cent.
Despite the inorganic growth strategy, SAMIL’s net-debt to equity is at a manageable 0.25x. The company is also efficient in converting accounting profit to cash, with at least 80 per cent of EBITDA being converted to cash consistently.
Recent performance
However, in Q1 FY26, revenue grew 4.7 per cent year on year, while EBITDA and profit (adjusted for one-offs) declined 11.4 per cent and 33 per cent. The reasons are as follows: One, OEM production volumes in Europe and the US were weak. OEMs in Europe, in particular, appear to be calibrating their powertrain mix (ICE vs EV based on demand), while also bearing the brunt of stiff competition from Chinese OEMs. Most European OEMs have also revised earnings guidance downwards. The US auto market is seeing cyclical headwinds, per the management. Besides revenue, this impacted operating leverage too, as EBITDA margin declined to 8.1 per cent from 9.3 per cent in FY25.
Two, the company has incurred start-up costs with respect to certain greenfield facilities and restructuring costs for certain group entities in Europe.
Three, though largely free from tariffs, SAMIL has an arrangement to pass on tariff-related costs to OEMs. There is a time-lag before the company gets compensated and per the management, this too played its role in weak performance in the recent quarter.
Outlook
Having built worldwide exposure, there’s no denying that the company will be vulnerable to global slowdowns. However, there are a few factors that signal optimism.
One, markets such as China and India are relatively better off. India, in particular, is expected to see a revival in demand, thanks to GST rate cuts.
Two, even if Chinese OEMs enter Europe, SAMIL can leverage its presence there and strike supply agreements with them.
Three, the company has a track record of turning around its acquiree companies. Over FY21-25, SAMIL has turned 31 out of 46 acquired units from EBITDA negative to positive. While the rest could go down the same path going forward, management has also hinted at more inorganic growth, as opportunities could come up, given some suppliers could succumb to tariff disruptions.
Four, SAMIL’s greenfield pipeline is healthy with 11 facilities expected to come online over FY26 and FY27. Capex for FY26 has been guided at ₹6,000 crore, half of it being growth capex. At a fixed assets turnover ratio of 3x (as observed historically), this could roughly mean incremental revenue of ₹9,000 crore (3 x ₹3,000 crore).
Five, its non-auto divisions, including aerospace (Airbus, a key client) are ramping up quickly, with revenue in Q1 growing 40 per cent year on year.
Six, SAMIL has a partnership with BIEL Crystal, a Hong-Kong based manufacturer of display glass for electronics such as smartphones. Production is set to commence in Q2. This will help further diversification.
Seven, order-book stands at $88 billion (24 per cent specific to EVs; $2.7 billion for non-auto divisions), representing revenue to be realised over the next five-six years.
The management has observed Q1 to be a transitionary quarter and that H2 FY26 will be better. Though the prospects for SAMIL’s non-auto businesses appear healthy, its core auto business depends a lot on macro factors underlying global auto market, which the company can barely influence. Investors need to closely watch the company’s performance in the upcoming quarters and will be better served accumulating on dips, as suggested earlier.
Published on September 27, 2025