Accumulate Motherson Sumi Systems; target of Rs 131: Prabhudas Lilladher

Prabhudas Lilladher's research report on Motherson Sumi Systems

Motherson Sumi Systems' (MSS) Q4FY19 performance missed our estimates, particularly on account of weak operating performance by its key subsidiary, SMP, owing to demand issues in Europe as well as higher start-up costs for the greenfield plants (particularly manpower issues & inefficiencies at their Tuscaloosa plant coupled with weakness in Daimler, a key customer for the plant). While their latest acquisition, Reydel (now SMRC) has been contributing a stable EUR200-250mn per quarter, revenue growth in the organic business has remained muted over the past few quarters owing to the demand slowdown across geographies. Given the lower operating leverage, high ramp-up costs as well as the WLTP norms in Europe, we expect margins to remain under pressure over the near term (particularly for SMP).

Outlook

We maintain 'Accumulate' with a target price of Rs131, based upon 18x Mar'21E EPS. At current market price, the stock trades at 23.6x FY20E & 16.5x FY21E Consol EPS.