Samvardhana Motherson stock falls as inflation wreaks June quarter earnings

Despite the company reporting the highest ever quarterly revenues, Samvardhana Motherson’s net debt increased along with continued inflationary headwinds.

Consolidated net debt rose because of higher working capital requirements amid a challenging environment.

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"Debt has risen slightly, but that is because we find it much more attractive to stock, and the global currency movement has been erratic. So, we increased our inventory holding last year, which is helping us more than troubling us,”  Vivek Chaand Sehgal, Chairman, Motherson Sumi Group, told CNBC-TV18.

The company has a controlled capital expenditure plan to conserve cash.

According to Sehgal, within the next quarter or two, the company would start to see a decline in the working capital requirements and the capex. "The firm is trying to reduce capex as much as possible because it has already invested in all good new assets and the maintenance capex etc., is really very low," Sehgal said.

Firm's capital expenditure in Rs crore (Source: Exchange data)

Even as the company reported disappointing quarterly numbers, Sehgal said, “The market demand remains strong. However, OEM production volumes continued to fluctuate due to various supply chain constraints, including chip shortages. The passenger car sales have shown an improving trend from April to June."

Jefferies has an ‘underperform’ call on the company’s stock with a target price of Rs 105.

The automotive component manufacturing company is facing severe inflationary pressures, which has resulted in the brokerage firm cutting earnings per share estimates by 15-31 percent for FY23-24.

Jefferies pointed out that the stock is unlikely to perform until earning downgrades ease.