Buy Motherson Sumi; target of Rs 229: SPA Research

"Motherson Sumi Systems (MSSL) is a globally preferred solutions provider for the automotive industry having presence across the value chain. MSSL is a market leader with c.65% market share in the passenger car wiring harness market in India & also commands c.53% & c.22% share of domestic & global car rearview mirror market respectively. The company has 120 manufacturing plants across the world (72 in India) with close proximity to its customers."

"We expect MSSL to gain significant synergies from acquisition of Peguform, by leveraging strong presence of the latter in the polymers interiors market, better purchasing power & intersourcing of raw materials within the group (as 50-60% of Peguform revenues are from bought-out components). We also expect MSSL to gain from improvement in operational efficiencies of Peguform plants, led by balancing act of capacity utilization at some of its plants, reflecting scope for improvement. We expect Peguform EBITDA margins to improve from ~1.3% in FY12 to ~6% by FY14E, thereby contributing ~38.4% to consolidated EBITDA."

"MSSL has become a global player with the acquisition of SMR & Peguform, having tie-ups with almost all auto majors. We expect improvement in standalone business through increased sourcing at subsidiaries, strong demand from domestic OEMs, execution of new orders at SMR through ramp up of new plants and restructuring of operations at Peguform should lead to improvement in blended margins for the Company. We expect MSSL's consolidated revenues & profits to register a CAGR of 41.5% & 50.8% respectively over FY12-FY14E with margins improving by 204 bps to 8.8% in FY14E. We recommend a "BUY" with a target of INR 229 in 18 months, based on 5x FY14E EV/EBITDA," says SPA Research report.

Non-Institutions holding more than 90% in Indian cos

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