Hold Motherson Sumi; target of Rs 335: ICICI Direct

ICICI Direct's research report on Motherson Sumi

Motherson Sumi’s (MSL) consolidated revenues came in at  Rs 13,129 crore (up 25.6% YoY), above our estimate of  Rs 12,918 crore. The result is not comparable on a like-to-like basis, as it includes the performance of newly acquired PKC group, which reported revenue €254 million (~ Rs 1,803 crore). Net sales from the standalone business (domestic) were up 21% YoY to  Rs 1,721 crore. Revenue growth of its subsidiaries, SMR and SMP (in constant currency terms) came in at 7% YoY & 16% YoY to €399 million & €851 million, respectively EBITDA margins expanded 16 bps YoY but contracted 196 bps QoQ to 9%. Standalone margins stayed flat YoY at 18.3%. EBITDA margins of SMR expanded 217 bps YoY to 11.3%. Margins of SMP contracted 21 bps YoY to 6.7% MSL had an exceptional expense of  Rs 150 crore (€21 million) towards prepayment of 4.1% secured notes worth €500 million resulting in redemption premium & unamortised transaction cost, Adjusted PAT (after minority interest) increased 20.2% YoY to  Rs 364 crore As of Q1FY18, its gross debt was at  Rs 11,055 crore while cash & bank was at  Rs 4,466 crore.

Outlook

MSL’s competence in turning around businesses is evident from the success of SMR & SMP its strong focus on RoCE augurs well going forward. We remain positive on the long term perspective though its inorganic way of expansion looks challenging. Adjusting for the allotment of bonus shares, we value MSL on an SOTP basis with a target price of  Rs 335 (earlier  Rs 450) and maintain HOLD rating on the stock.