Buy Motherson Sumi; target of Rs 341:Prabhudas Lilladher

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Prabhudas Lilladher's research report on Motherson SumiWith a strong EBITDA margin at 10.4%, Motherson Sumi’s (MSS’) Q2FY16 results were better than expectations. MSS reported its highest quarterly consolidated EBITDA margin for MSS since Q4FY11, and its highest quarterly profit during Q2. The good operating performance was also reflected in the margins reported by SMR and SMP at 9.6% and 6.7% respectively, along with an improved standalone EBITDA margin. As a result, MSS’ adjusted profit grew 69% YoY in Q2FY16 toHowever, the problems of one of MSS’ key customer – the Volkswagen group ‐ are unlikely to be resolved in the near‐term, and have the potential to result in blips in production schedule over the next one year. We reduce our estimates by 2.1% in FY16e and 14.8% in FY17e to factor in lower revenues for MSS from this group. We note the management’s commentary that as of Q2 there was no disruption in production schedule from VW. We maintain ‘BUY’ with a lowered price target of Rs341 (previous TP: RsRs400). At our PT, MSS would trade a PE of 25xFY17e, while at CMP, it trades at 19.5xFY17e. Rs3.5bn.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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