Hold Motherson Sumi; target of Rs 120: ICICI Direct

ICICI Direct's research report on Motherson Sumi

We attended Motherson Sumi’s (MSSL) virtual investor conference about the top businesses in the promoter entity, Samvardhana Motherson International (SAMIL). The meet was informative with all business heads explaining their respective businesses in detail, the margin and RoCE profile that they operate in, the customer segment that they cater to, growth opportunities that lie ahead and also shared their journey towards attaining the group target of 40% RoCE in their respective businesses in due course of time. We were particularly enthused by SAMIL’s lighting business (ahead of industry in terms of share of revenues in the LED segment) as well as other businesses that are likely to gain traction due to constant up-gradation in safety norms worldwide. As part of MSSL’s corporate restructuring exercise, MSSL would be merging SAMIL into itself by acquiring the latter’s other lines of business in auto ancillary and other support functions. This would consolidate all the group’s automotive businesses in the present listed entity (ex-domestic wiring harness division, which would be listed separately on exchanges).

Outlook

We value MSSL at Rs 120 i.e. 22x P/E on FY22E EPS of Rs 5.4 and retain our HOLD rating on the stock. For simplicity we have retained MSSL numbers (ex-corporate restructuring) and P/E valuation methodology which depicts the same target price as our SOTP based fair value calculation exercise incorporating restructuring (Exhibit 14).