Hold Motherson Sumi; target of Rs 335: ICICI Direct

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ICICI Direct's research report on Motherson Sumi

Motherson Sumi’s (MSL) consolidated revenues came in at Rs 14,775 crore (up 12.5% YoY), below our estimate of Rs 15,825 crore. The Q1FY19 results are as per new ‘accounting standard Ind-As 115’. Thus, results are not comparable. The impact of new norms mainly lowered revenue of SMP (~Rs 1318 crore) & standalone (~Rs 90 crore). Thus, adjusted revenues grew 24% YoY to Rs 16,106 crore Net sales from standalone business grew 16.5% YoY to Rs 2,004 crore. Further, SMR revenue (in constant currency terms) grew 1% YoY to €403 million while SMP revenue declined 6.9% YoY to €792 million. Revenue from PKC operations grew 17% YoY to €296 million Consolidated EBITDA margins expanded 52 bps YoY to 9.6%. EBITDA margins of the standalone business declined 119 bps YoY to 17.1% mainly impacted by higher input cost (copper price up 21.3% YoY). EBITDA margins of SMR contracted 10 bps YoY to 11.2% while SMP margin contracted 50 bps YoY to 6.2% (impacted by higher star-up cost). Margins of PKC business expanded 157 bps YoY to 9.5%. Adjusted PAT grew 21.8% YoY to Rs 443 crore The company inaugurated its SMP Tuscaloosa (US) plant while globally its six plants are at different stages of completion. Also, MSL completed the Reydel acquisition on August 2, 2018. Thus, it would be consolidated into financials from Q2FY19E onwards.

Outlook

MSL’s competence in turning around businesses & strong focus on RoCE is evident from the success of SMR, SMP. However, its inorganic way of expansion looks challenging. MSL is currently facing high start-up cost pressure that could be absorbed as volume picks up. However, any slowdown in demand (due to regulatory, geopolitical issues) will further result in higher overhead cost. Thus, we value MSL at 23x its FY20E EPS of Rs 14.4/share with target price of Rs 335 and HOLD rating on the stock.

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