Buy Motherson Sumi System; target of Rs 406: Cholamandalam Securities

Cholamandalam Securities' research report on Motherson Sumi System

In 4QFY18, Motherson Sumi’s (MSSL) consolidated revenues grew robustly 36.9% YoY to INR 154bn, aided by healthy growth in standalone (+21% YoY) revenue, SMP (+10.5% YoY)  and PKC (+29.3% YoY) . Standalone revenue came in at INR 17.2bn led by domestic sales and exports. However, SMR witnessed muted performance during the quarter. For FY18, revenue grew by 33% YoY to 562.9bn, EBITDA and PAT grew by 23%/6%YoY, respectively.  In 4QFY18, Consolidated EBITDA grew by 23.9% YoY to INR 15.0bn. Consolidated EBITDA margin declined by 102bps YoY to 9.7% due to higher RMC cost and start-up cost relating to new plants. Cons. Adj. PAT grew by 9.2% YoY to INR 5.1bn. Standalone EBITDA margin declined by 90 YoY to 18.5%, impacted by sharp rise in copper prices (+19.3% YoY).  The company’s order book stands at EUR17.2bn (highest ever) as on FY18. Management indicated that no new capacity addition is required for current order book and guided a capex of INR 30bn.

Outlook

At CMP, the stock is trading at a valuation of 25.7XFY19E and 18.2XFY20E earnings. We maintain a BUY rating on the stock and arrive at a revised target price of INR 406; valuing the company at a P/E 24XFY20E EPS. Risks: Rise in copper prices and adverse cross-currency movement can pose a threat to the business.