Buy SPR Auto Technologies; target of Rs 6150: Motilal Oswal

What happened

Motilal Oswal reiterated its Buy rating on SPR Auto Technologies and kept its target price at Rs 6150. SPR reported record revenue of INR16.5b, up 62% year over year, and record EBITDA, a measure of operating earnings, of INR2.7b, up 32%. Its EBITDA margin, the share of revenue left as operating earnings, was 16.6%.

Confirmed

Global impact / market context

Strong demand from vehicle makers drove revenue growth, but the greater share of sales to them compared with the aftermarket, meaning parts sold after a vehicle is made, reduced the reported profit per sale. If that mix persists, revenue could grow while operating earnings rise more slowly.

Analyst inference

Motilal Oswal’s unchanged target price is based on valuing forecast earnings at 30 times, while the report says SPR has completed a INR10b share sale to fund future growth. It names no projects or expected returns, so the use of those funds remains uncertain.

Confirmed

What to watch

1. Watch whether demand from vehicle makers continues to support revenue, and whether the sales mix changes enough to improve the reported share of revenue left as operating earnings. Analyst inference
2. Look for details on how the INR10b raised through the completed share sale is allocated between internal expansion and acquisitions, and whether those investments generate growth. Analyst inference
3. Compare future operating earnings and reported margins with the report’s latest results; weaker performance could challenge the growth case behind Motilal Oswal’s unchanged target price. Analyst inference

Evidence

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