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Motherson Sumi Systems Ltd Research Report - 21st Jan 2016

Auto Ancillary | Published on Nov 18th 2015

IT

For 2QFY2016, Motherson Sumi Systems Ltd (MSS)’s results have come in ahead of estimates. The top-line grew strongly by 15% yoy led by robust growth in SMP and pick up in the standalone business. Given the healthy revenue growth and soft commodity prices, the adj net profit grew at a faster pace of 27% yoy. Top-line growth remains strong: MSS maintained its double digit top-line growth momentum, reporting sales of Rs9,198cr for 2QFY2016, implying a growth of 15%. The growth was led by SMP, whose revenues grew 18% yoy to Rs4,399cr, despite the depreciation in the Euro. Pick-up in order execution boosted growth. (In Euro terms SMP grew 31% yoy). Standalone revenues grew 10% yoy to Rs1,393cr led by recovery in the passenger vehicle industry. However, SMR’s revenue growth moderated to 3% (at Rs2,424cr) impacted by the Euro depreciation. But in Euro terms, SMR’s growth continued to remain strong growing by 14%. Operating leverage along with soft commodity prices boost profitability: Given the robust double digit top-line growth and soft commodity prices, MSS’ operating margins expanded 130bp yoy to reach 10.4%. Given the strong operating performance, MSS’ net profit grew strongly by 27% yoy to Rs289.3cr. Outlook and valuation: MSS continues to report improvement in its operating performance, driven by its strategy of increasing the content per car, improvement in utilization levels at the new plants and profitability improvement measures at SMP. However, the emission scandal at MSS largest customer, Volkswagen (Volkswagen currently accounts for ~40% of the topline) could have a near term impact on the revenues as the brand takes a knock leading to loss of volumes. The issue is likely to remain a key overhang on the stock, unless further clarity emerges on the same. Nevertheless, we expect the company to sustain its strong performance in the long term through increased internal sourcing by subsidiaries and improvement in utilization levels at the plants led by execution of new orders (new order book currently stands at Euro 12.5 billion which gives a strong outlook). We expect MSS to register a strong revenue and net profit CAGR of ~14% and ~27% respectively over FY2015-17E. Thus, we assign Accumulate rating on the stock with a target price of `313 (based on 25x FY2017 earnings).

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Accumulate

CMP 281
Target Price 313
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)42,906.21
MCAP NSE (Rs in Cr)42,969.37
P/E (x)26.13
EPS (Rs.)11.70
BV (Rs.)37.79
Div Yield (%)0.77
FV (Rs.)1.00
P/BV (x)4.25
EV/Sales (x)1.24
EV/EBITDA (x)15.04

Shareholding Pattern (%)

Promoter126.0
Foreign40.0
Institution14.0
Corporate6.0
Public & Others-86.0
Grand Total100.0

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