Hold Motherson Sumi; target of Rs 280: Edelweiss

In Q4FY16, Motherson Sumi’s (MSS) adjusted EBITDA at INR10.6bn (up 17% YoY) came 6% below our estimate due to sharp disappointment in SMR/SMP revenues. Key highlights were: 1) India business (revenue and margin) surprised positively; 2) SMRPBV’s disappointing revenue was compensated by robust margin; 3) sharp jump in SMRPBV’s order book to EUR13.5bn (EUR10.8bn YoY); and 4) robust demand outlook across key clients and geographies.

We believe the earnings downgrade cycle is largely behind. For India, we expect revenue growth to track volumes going ahead. We estimate FY16‐18 consolidated EPS CAGR of 26% with 36% RoE. RoCE is anticipated to catapult to 36% in FY18 from 26% in FY16 and net debt/equity is likely to improve as well to 0.3x from 0.7x over the same period. Ergo, we revise up our target PE multiples for standalone business to 22x (from 20x) and of SMR/SMP businesses to 12x (from 10x). However, the recent stock price surge captures the positives. Hence, we maintain ‘HOLD/SU’ with revised target price of INR280 (INR248 earlier). At CMP, the stock trades at FY18E PER of 17x.