Buy Motherson Sumi Systems; target of Rs 139: Emkay Global Financial

Emkay Global Financial's report on Motherson Sumi Systems

Q2FY21 EBITDA margin expanded 120bps yoy to 10%, above the estimate of 9.1%, owing to better SMP margin. The positive highlight was a turnaround in SMP’s new Greenfield plants, due to better scale and cost reduction efforts. SMR PBV order-book is healthy at EUR13.1bn, relating to Europe, Americas and Asia regions. These orders would to be serviced from existing plants, and no new Greenfield investments are required. We expect average FCFs at Rs23bn/year over FY21-23E. The ongoing restructuring exercise remains on track, and this revision in organization structure is a key step toward the company's Vision 2025 − revenue target of USD36bn with ROCE of 40% vs. 2020 revenue of USD12bn and adjusted ROCE of 25%.

Outlook

Led by better margins in SMP, we upgrade FY21-23 EBITDA estimates by 4-7%. Following the revision, we expect EBITDA CAGR at 14% over FY20-23E. Retain Buy with a TP of Rs139 (Rs133 earlier), based on 20x FY23E EPS.