Moneycontrol Bureau
Motherson Sumi Systems shares gained more than 2 percent intraday Monday. Bank of America Merrill Lynch (BoAML) reiterated its buy rating on the stock with a target price of Rs 342 owing to the strong growth prospect.
The brokerage said Motherson India unit, contributing to 46 percent of price target, is likely to see more than 15 percent revenue growth from FY17, significantly better than 5-10 percent growth since FY14.
"Depreciation of rupee against Japanese yen and rise in copper price will likely lift the cost of wiring harnesses (73 percent of the India unit's revenue), which is a reversal of trend against the past three years. Motherson as a fully integrated manufacturer should benefit from this like in the past as its customers would likely look for increased import substitution. This should increase average selling price by 6-7 percent in FY17 and FY18, and thereby drive overall India growth by 15 percent," it explained.
Stronger growth will address concerns of discounts and market share loss, it feels.
Motherson has likely lost 400 basis points share in domestic passenger car wiring-harness business over the past two years to Minda Furukawa, which now claims to have 11 percent share. Minda Furukawa mainly caters to Maruti and Nissan.
BoAML expects no further share loss in next two years for Motherson as it has won some key new products launched by Maruti in 2H FY16, there should be significantly fewer new launches by Maruti and Nissan in FY17-18, and Motherson should be more competitive in a rising cost scenario.
According to its note, key risk is slower-than-expected margin expansion.
The brokerage said input cost rise could add to such concern, though Motherson has a strong track record of maintaining margins amid cost escalation. It maintained forecast of 220 basis points EBITDA margin expansion in FY16-18 as Motherson Sumi starts to monetise new factories added recently.
At 11:28 hours IST, the scrip of Motherson Sumi Systems was quoting at Rs 261.60, up Rs 3.95, or 1.53 percent on Bombay Stock Exchange.Posted by Sunil Shankar Matkar
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
