Buy Motherson Sumi; target of Rs 597: P Lilladher

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Prabhudas Lilladher's report on Motherson Sumi Systems

"In its fifth 5-year plan over the period FY16-20, Motherson Sumi Systems (MSS) has targeted revenues of US$18bn by FY20 (up from ~US$5.5bn in FY15), as well as a consolidated RoCE target of 40%. Target markets for further growth include North America and China, with the acquisiton of Stoneridge in FY15 likely to help in faster penetration of the former region. Of the growth targeted, ~one-third could come from acquisitions, but at this stage, it would not be possible to define the nature and size of any potential target. It is also expected that FY20, no customer and no country should be having a greater than 15% share of revenues (In FY14, Audi had a 20% revenue share)."

"Target for FY20 indicates a revenue CAGR expectation of 26.8%, in addition to the standard RoCE expectation of 40% and a dividend payout ratio of 40%. Given the company’s track record in terms of accomplishing its published targets, revenue targets seem plausible. However, the nature of possible acquisitions, their profitability and the time required for their turnaround would eventually decide whether the profitability target is met. The new order pipeline remains strong, debt reduction continues and subsidiary profitability is on an upswing. We rate MSS a ‘BUY’ with a price target of Rs 597. At our PT, MSS would trade a PE of 25xFY17e, while at CMP, it trades at 21xFY17e", says Prabhudas Lilladher research report.

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