Buy Motherson Sumi Systems; target of Rs 125: Prabhudas Lilladher

Prabhudas Lilladher's research report on Motherson Sumi Systems

MSS Q1FY21 consolidated performance missed expectations led by lower utilization impacting operating leverage. The company disclosed weaker than expected margins in key business such as SMP -8.3% (PLe -4%), SMR -2.8% (PLe +2%), PKC -4% (PLe +3%) and S/A at -26% (PLe 3%). However, from 2QFY21 the consol margins can turn positive at 4-5% based on improved plant utilization (~84% of plants have reached utilization of +50-75% as of July). Cost control led improvement in green field operations with EBITDA loss of Eur19mn (v/s cumulative loss of Eur175mn in FY20) aiding margins improvement at SMP. We cut FY21/22 EPS by 28%/6.5% while maintaining FY23 EPS.

Outlook

We maintain BUY with revised price target of Rs125 (Rs116) at 18x (unchanged) roll forwarded to Sep-22 EPS.

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