Buy Motherson Sumi Systems; target of Rs 500: Emkay

We expect further gradual uptick in margins driven by new order execution at SMP and capacity ramp up at new facilities in SMR

We cut FY15 estimate by 8% as capacity ramp up/new order executions could likely lead to near term pressure on profitability. Structural positives remain intact. Raise TP to Rs 500, based on 20xFY17E EPS

"We have cut our FY15E estimates by 8% as new order executions/capacity ramp is usually slow in the beginning and could adversely impact profitability in the short term, despite being significantly positive in the medium-to-long term. The company has emerged from becoming an Indian wiring harness maker of repute to add supply of rear view mirrors and polymer products to major European OEMs. By 2020, we expect MSSL to become a player with extended reach in Americas and Asia. We see a 30%+ earnings CAGR over FY14-FY18E. We recommend BUY and raise our TP to Rs 500, as we roll-forward to FY17E. The stock is trading at 19.8x/15.8x FY16/FY17E earnings", says Emkay Global Financial Services research report.

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