Hold Motherson Sumi; target of Rs 309: Edelweiss

Edelweiss' research report on Motherson SumiMotherson Sumi’s (MSS) Q1FY17 adjusted EBITDA of INR9.3bn (up 20% YoY) came 4% below our estimate due to lower than expected SMR/SMP revenues. Key highlights: 1) SMRPBV disappointed on revenue and margin fronts largely due to SMR; 2) net debt in SMRPBV increased QoQ and YoY, indicating investment phase of the business; and 3) India business outlook continues to improve. We maintain ‘HOLD’ with SoTPbased target price of INR309 (standalone: 25x versus 22x earlier, both SMR and SMP: 12x FY18E PER) versus INR 280 earlier.

We expect India business revenue growth to be higher than volume growth due to higher content per vehicle in new models. For SMR/SMP, we expect strong revenue/margin uptick in H2FY17. We estimate consolidated EPS CAGR of 25% over FY16‐18E with 35% RoE. RoCE is anticipated to jump to 31% in FY18 from 26% in FY16. Net debt: equity is likely to improve to 0.1x from 0.7x over the same period. We raise our target PE multiple for standalone business to 25x (from 22x) to factor in the potential impact on demand due to GST. However, the recent stock price surge captures the positives. Hence, we maintain ‘HOLD/SU’ with a revised target price of INR 309 (INR 280 earlier). At CMP, the stock trades at 20x FY18E PER.