SAMIL shares fall 2% as Kotak Institutional Equities downgrades to 'reduce' on Atsumitec acquisition

SAMIL shares have rallied 63 percent since the start of the year.

Shares of Samvardhana Motherson International Limited (SAMIL) fell as much as 2.5 percent to Rs 165 on December 9 after Kotak Institutional Equities downgraded to 'reduce' from 'add' following the company's acquisition of a 95 percent stake in Japan's Atsumitec for $57 million.

The brokerage has set a target price of Rs 170, aligning with the stock's last closing price on the NSE, indicating no anticipated upside. SAMIL shares have surged 63 percent since the start of the year.

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Atsumitec is engaged in the production of high-precision machined components, including gear shifters, chassis and transmission parts for four-wheelers and two-wheelers.

Kotak highlights that SAMIL's acquisition marks its entry into new product segments, including chassis components like gear shifters and powertrain parts such as pulleys, connecting rods, and stator shafts. The deal also expands SAMIL’s footprint into Vietnam, granting access to global metal and machining capabilities. The company expects this to enhance its penetration with Japanese OEMs on a global scale.

However, European Union passenger vehicle (EU PV) volumes have grown a modest 1 percent year-to-date in 2024, with weak demand persisting across major OEMs like Mercedes-Benz, Audi, BMW, Porsche, Stellantis, and Volkswagen. Since EU PV OEMs account for about 40 percent of SAMIL's revenues, this sluggish trend is likely to impact its revenue growth. Additionally, Volkswagen and Stellantis are reportedly planning plant shutdowns in Europe to align production with softer demand, which could exert pressure on Tier-1 suppliers’ margins in the coming quarters.

Kotak has trimmed its FY2026-27 EPS estimates for SAMIL by 4-7 percent due to lower margin expectations, reflecting global OEMs revising their margin outlooks downward. While the Atsumitec acquisition was done at attractive valuations, its EPS accretion is estimated at a modest 1-2 percent based on FY2024 PAT. Near-term growth and margins for SAMIL are expected to remain under pressure, given the ongoing weakness in the global automotive market. Kotak believes the company's current valuations appear fair.

At about 1:45 pm, shares of the company were trading at Rs 166, lower by 2.5 percent from the last close.

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