Even though we don’t have any other pure Indian competitor who manufactures the exhaust systems for passenger vehicles , how should we arrive at a correct valuation for SMIL ?.
These are just rough estimates, i also have considered small sales due to TREM V as OEM’s would already procure to make it ready for April 2024 (subject to correction) :
Sales of FY23 would be around ~ 2700 crs (considering one more flattish qoq)
Projected revenue for FY24 : ~ 3250 (20% & being conservative)
Projected EBITDA FY24 : 325 crs (considering just nominal 10%)
Projected PBT FY24: 284 Cr (41 crs , as depreciation for last 3 years were 40,43,40)
Projected PAT FY24 : 210Cr (considering normal 26%)
EPS projected FY24 : ~ Rs 70
so FY24 projected P/E would be ~ 8.6
This is including the RDE & some trem V sales. Is the 20% growth on the higher end ?.
I have tried reading a bit about Faurecia & Tenneco to understand about the valuations. But both are very diverse & are ventured into lot of systems so a bit difficult to correlate. If i just take the Tenneco’s clean air entity, the last q3 has a growth of 25% on yoy & >10% for the 9M on yoy . so there is no de-growth visible even in large mnc’s. (Ref : https://www.tenneco.com/news/news-detail/2022/10/31/tenneco-reports-third-quarter-2022-results).
Also we have a company called Munjal Auto, which is into exhaust systems & rim’s for motorcycle’s which trades at 15 times at the CMP & with just single client constituting for more than 80% revenues.
So, I feel SMIL has good value at the CMP, even considering a nominal median P/E of 14-15.
Also considering very good cash reserves, we may also see an M&A in power train agnostic stream in near future. As the next decade will see a diverse range of power train vehicles coming into the market (Pure EV/Hybrid ICE/H2 ICE/H2 FEV) it is good to be agnostic to the power. Also the exports of subcomponents of the emission system would also be a very good opportunity.
Even though i feel the BMS JV with kinetic green is going a bit slow & also the SMIL management is bit conservative in the concalls. The management of KG has been very aggressive in their estimates of 2W/3W sales. They also have made some good JV’s & tie ups. They also are hiring few talented folks (ref: Kinetic Green appoints Vijay Bhatt as Senior Executive VP for two-wheeler business | The Financial Express). So on an overall KG seem to serious & fighting for the market share. Indirectly it should benefit the JV if it continues.
Disc: Have 6% allocation. Added slightly after the recent fall.
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