On Thursday, Citi reaffirmed its Sell rating and INR105.00 stock price target for Samvardhana Motherson International (MOTHERSO:IN), citing a potential near-term underperformance due to a negative catalyst watch initiated for the next 90 days.
The automotive component manufacturer faces headwinds as global auto volumes have shown weakness, particularly with original equipment manufacturers (OEMs) in the European Union reducing their volume guidance.
The board of Samvardhana Motherson International has given the green light for fund-raising through various methods. Details on the financing are still forthcoming, but there is concern that additional debt could put further strain on the company's balance sheet, which already carries a net debt of Rs160 billion, including leases. An equity-based fundraising could lead to earnings per share (EPS) dilution.
The analyst from Citi pointed out that the current valuations of Samvardhana Motherson International at 38/32 times the forecasted FY25/26 EPS seem to already account for potential growth in the non-automotive business sector. This valuation provides little comfort to investors, suggesting that the market may have overly optimistic growth expectations for the company's non-auto divisions.
The cautionary stance by Citi reflects the broader challenges faced by the automotive industry, with demand softening and inventories building up. Samvardhana Motherson International's upcoming moves regarding its fundraising strategy will be closely watched by investors as it could significantly impact the company's financial health and stock performance.
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