Dividend Paying Stock: This Auto Share Trading Near Rs 100 Is Seen To Rise By 28% Ahead; Do You Own?

Share price of Samvardhana Motherson International traded near its 52-week high on Monday, and gained by nearly 2% so far in the day. The stock also regained its critical Rs 100 mark as well. The performance comes when brokerage JM Financial has added the stock as its top pick in the automotive segment as it expects robust potential in the company ahead. Motherson stock, which has held a good track record of paying dividends, and other incentives to shareholders, is factored to rise by over 28% ahead.

At the time of writing, Motherson stock traded at Rs 100.70 apiece, up by 1.13% from its previous closing of Rs 99.57 apiece on BSE. Its market cap stood at Rs 68,163 crore.

The stock touched an intraday high of Rs 101.45 apiece in the early trade, which is near its 52-week high of Rs 103.50 apiece. Overall, so far on Monday, the stock advanced by at least 1.9%. Buy year-to-date, the stock has rallied by a whopping 33% on the exchange.

The company has declared nine bonuses since 2000, but has been paying consistent dividends to the tune of 23 dividends since August 2001, as per Trendlyne data. The stock has also carried sub-division (stock split) two times in 2004 and 2016.

In the fiscal year FY23, the company paid a dividend of Rs 0.65 per share or 65% to its shareholders. At the current market price, it has a dividend yield of 0.65%.

In its research note dated September 10, JM Financial said, "Led by 30+ acquisitions over the last two decades, Motherson Group has expanded from a single-product / geography to a multi-product / geography auto components behemoth. During this period, its revenue has grown at c.30% CAGR to $14bn. The company has jumped global automotive supplier ranking from Top-40 in 2005 to Top-15 in 2023."

The brokerage's note added, " We believe analysing this company in the same manner as one analyses most other companies (basis qtrly orderbook movement, topline growth, etc.), may not be prudent. It is best viewed/analysed basis business growth over a period of time (1-3yrs), and as an encompassing play in the global automotive space. The company has a proven track record of turnarounds and expanding global market share (c.0.4% in 2010 to c.2.5% in 2023)."

JM Financial believes the group with its global presence, an expanding portfolio of powertrain-agnostic products and a wide customer base presents a multi-year growth opportunity.

In terms of valuation, JM Financial highlighted that currently, global auto component companies are trading at an average ~6x CY24 EV/EBITDA. It added, "If we value SAMIL at avg. global valuation of ~6x 1-yr forward EV/EBITDA, equity valuation comes to Rs 580 billion (Rs 85/share). This valuation would be without considering India premium + premium on account of market share gain."

Further, it said, "The best of the auto component companies in India trade at avg. 12-15x EV/EBITDA. We believe ~8x would be an ideal EV/EBITDA for SAMIL." Hence, the brokerage added, "SAMIL is our top pick in the space - our Sep'24 TP of Rs 130 represents a 30% upside. Given the long growth runway, we see a clear potential for SAMIL to deliver a three-year IRR of c.25%."

From the current intraday high to the target price of JM Financial, the stock has potential of 28.14% upside ahead.