Buy Motherson Sumi; target of Rs 381: Karvy

Motherson Sumi Systems Ltd. (MSSL) reported mediocre performance in Q1FY17 amid overall challenging environment and headwinds in global business. It’s consolidated Rev/EBIDTA/adj PAT grew by 15.5%/22%/17.1% YoY and 2.1%/-11.6%/-26.1% QoQ to Rs 104.5bn/9.4bn/3.1bn (our estimate of Rs 111.5bn/11.8bn/3.9bn). Its EBIDTA margin expanded 50 bps YoY (down 140 bps QoQ) to 9%, benefitted by lower commodity prices. Revenues at SMR grew by 6.6% YoY and at SMP by 12.9% YoY in Euro terms, is commendable. Its standalone revenue grew by 18.3% YoY (down 2.1% QoQ), on the back of strong PV sales and better traction from high end models. Lower operating margins at SMR pulled down overall EBIDTA margins QoQ in Q1FY17. SMR’s EBIDTA margins expanded by 54 bps YoY (down 344 bps QoQ) to 9.1%. SMP’s EBIDTA margins rose 79 bps YoY (down 32 bps QoQ) to 6.9%.

We broadly maintain our volume and revenues estimates for FY17E/FY18E. Factoring lower initial utilization, we reduce our Margin/EBIDTA estimates for FY17E/FY18E. Accordingly we reduce our EPS by 7.6% for FY17E, while, for FY18E we increase our EPS by 10.7%, factoring lower than expected interest and depreciation. With improving revenue visibility, we marginally increase our valuation P/E multiple from 24x to 25x. Accordingly, we increase our target price by 15% to Rs 381, valuing the stock at 25xFY18E EPS. In view of strong business profile, strong order book and better revenue visibility to achieve 2020 target, we maintain our positive view on MSSL and reiterate our BUY recommendation on the stock.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.