Buy Motherson Sumi; target of Rs 256: BP Equities

BP Equities is bullish on Motherson Sumi Systems (MSSL) and has recommended buy rating on the stock with a target price of Rs 256 in its September 6, 2012 research report.

“MSSL is the second largest exterior rear view mirror manufacturer with 22% market share in passenger cars market in the world. The strategy of growing both organically and inorganically sets MSSL apart from other Indian Auto Ancillaries and it depicts the key managerial skill as it has been able to turn the acquired companies profitable after finding the best suitable fit which complements MSSLs existing product portfolio, geographical presence and clientele. MSSL holds leadership position in Indian Passenger car’s wiring harness market with more than 65% market share.”

"There was a sharp rise in new orders from German OEMs due to which SMR has set up its second plant in Hungary (revenue contribution in Q1FY13: ~10%). We believe the EBITDA margin to increase gradually from 5% in FY12 to 8% in FY14 with increasing level of capacity utilization and inter-group sourcing. We have seen significant development happening in many countries, particularly in China, where SMR enjoys a market share of 10% which we expect to increase going forward due to strong order inflows supported by a new greenfield plant. SMR has strong business relationship with BMW and Daimler thus we expect SMP’s revenue from these OEMs to increase going forward (current contribution: 9% and 2% respectively). SMP’s business of interior and exterior products complements MSSL’s existing polymer processing business."

“MSSL has a strong presence in domestic passenger car Industry with a dominant position in wiring harness segment. We expect volume growth to remain strong in all revenue segments on the back of capacity additions and increasing utilisation levels. MSSL is currently under capex mode, the benefits of which would accrue over a longer period. The recent acquisition of SMP (which is gaining traction) and along with continued growth in SMR and standalone business, we have a long term positive outlook on the company. We initiate coverage on the company with buy rating; we have valued the company using SOTP method and arrived at a target price of Rs 256 (Upside of 34% from current level),” says BP Equity research report.

Public holding more than 90% in Indian cos

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