Motherson Sumi Systems shares gained more than 2 percent intraday on May 28 as brokerages remained bullish on the stock despite weak March quarter earnings and see 24-59 percent potential upside though some of them cut price target.
The stock was quoting at Rs 118.50, up Rs 2.35, or 2.02 percent on the BSE at 1108 hours IST, but it plunged 44 percent in the last one year.
The auto ancillary company's January-March quarter profit fell 21 percent year-on-year to Rs 410 crore, dented by weak operating income and standalone business, but revenue beat analyst estimates.
Consolidated revenue from operations increased 11.4 percent to Rs 17,169.5 crore driven mostly by international business that grew 14 percent.
Motherson said during the year it bagged new orders worth Rs 45,312 crore and started execution of orders worth Rs 55,021 crore. We have a strong order book of over Rs 1.47 lakh crore at SMRP BV level, it added.
Here is what brokerages say about the company's results:
Brokerage: JM Financial | Rating: Buy | Target: Rs 150 | Return: 29 percent
In Q4FY19, Motherson Sumi Systems' (MSSL) consolidated EBITDA margin contracted 250bps YoY to 7.2 percent, primarily due to negative operating leverage at SMP. SMP, which constitutes 47 percent of total sales of MSSL, disappointed with EBITDA margin at 1.9 percent (-350bps QoQ).
Margin was impacted by auto slowdown in European Union (WLTP transition) and lower utilisation level at greenfield facilities (42 percent utilisation). EU auto slowdown (Q1CY20 industry fell by 3 percent YoY) will continue to impact margins of MSSL during FY20. Also, ramp-up cost from three greenfields of SMP (Mexico, US and Hungary) will limit margin expansion.
While domestic OE sales (PVs) are likely to be uncertain during FY20-21, we anticipate a recovery in European markets during FY21. We estimate a 15 percent CAGR in consolidated earnings over FY19-21E. Maintain buy with a revised target price of Rs 150. European slowdown beyond CY19 and slower-than-expected ramp-up at greenfields are key risks to our investment view.
Brokerage: Macquarie | Rating: Outperform | Target: Rs 185 | Return: 59 percent
We maintain outperform call on the stock with a target price at Rs 185 apiece.
EBITDA of Rs 1,200 crore was lower than our estimates and consolidated revenue growth was impacted by lower production by OEMs in India and globally.
Margin was affected by higher ramp-up costs at SMP's 2 new plants, but management expects profit margin to improve in the second half of FY20.
Brokerage: Nomura | Rating: Buy | Target: Rs 156 | Return: 34 percent
We maintain buy call on the stock as attractive valuations limit downside, but slashed price target to Rs 156 from Rs 171 apiece as we lowered EBITDA estimates by 8 /5 percent for FY20-21 and cut EPS estimates for FY20/21 by 11/9 percent.
New plants ramp-up and India recovery will drive performance.
Brokerage: Emkay | Rating: Buy | Target: Rs 144 | Return: 24 percent
We lower FY20/21 EPS estimates by 21/12 percent to Rs 6.1/Rs 8 as a result of a 2-5 percent decline in revenue expectations and a 50-110bps reduction in margin assumptions. Despite the cut, we expect revenue/earnings CAGR at 13/25 percent over FY19-21E.
Average RoE/RoCE is expected at 18/22 percent over FY20-21E with free cash flow generation of Rs 2,500 crore per year. Maintain Buy with a target price of Rs 144 (from Rs 182 earlier) based on 18x FY21E EPS (from 20x FY21E EPS earlier).
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