Auto components maker Samvardhana Motherson International has completed seven acquisitions in the last few months, and has another five on its radar.

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These 12 acquisitions will lead to a spike in debt for the Pune-based company. However, Chief Financial Officer Kunal Malani told CNBC-TV18 assured investors that the leverage will not go beyond twice the EBITDA.

EBITDA stands for earnings before interest, tax, depreciation and amortisation. "What you've seen currently, as an expansion is an account of working capital, again partly driven off the execution of the $70 billion order book, which requires us to do our engineering upfront. Hence, those are lying in working capital right now. As the order starts into production, those will get sold off, and hence the working capital declines," Malani said.

After four tough years, Samvardhana Motherson saw its net profit jump more than four times to at Rs 601 crore in the first quarter that ended June 30, 2023, compared to the same period in 2022.

According to a regulatory filing, its total revenue stood at Rs 22,462 crore in the first three months of the current financial year, 27 percent more than what it made in the same period a year earlier.

The auto parts maker was able to make more profit from every rupee of additional revenue. The EBITDA margin widened to 8.6 percent in April-June 2023, compared to 4.7 percent in the corresponding period in the previous fiscal.

There was more bang for the buck, thanks to the fall in raw material and energy prices, as well as operational efficiencies, according to the company. After a nearly 27 percent rise in stock value, Samvardhana Motherson's market capitalisation stood at over Rs 65,000 crore as on August 14.

These are some of the recent acquisitions by the company:

In July 2023, Samvardhana Motherson signed an agreement to acquire 100 percent stake in Rollon Hydraulics Pvt Ltd at an enterprise value of Rs 76.5 crore.

It also signed agreements for a $14 million investment in Prysm Systems and taking an 81 percent stake in Yachiyo’s four-wheeler business. Yachiyo is a subsidiary of Honda Motor, which makes both four wheelers and two wheelers.

Last month, Jefferies said it expects the Samvardhana Motherson's annual operating profit to double, and earnings per share (EPS) to treble, by March 2026. The US-based investment bank also raised the target price for the stock to Rs 115 apiece from Rs 70 earlier. Similarly, peer investment banks Nomura and CLSA expect the stock to hit Rs 105 and Rs 102 by July 2024. These upgrades reflect the hopes that the company's acquisitions will starting paying off in the coming months and years.

Chief Operating Officer Pankaj Mittal also said that the company will keep the debt in check even as it tries to expand fast. "While the leverage may go up for a short term to medium term, but then we again, bring it back. So that's the kind of direction with which we move," added Mittal.

(Edited by : C H Unnikrishnan)

First Published:Aug 14, 2023 11:11 AM IST