Brokerage house Edelweiss has recommended a reduce rating on Motherson Sumi Systems with a target price of Rs 330 in its research report dated August 6, 2015.
Edelweiss' report on Motherson Sumi Systems
Motherson Sumi’s (MSS) Q1FY16 EBITDA came ~7% lower than estimate due to disappointment in standalone and below estimate margin at 17.3% (18% estimate). Management attributed this to adverse currency (JPY, EUR) in exports and drop in commodity costs. SMR/SMP sustained healthy revenue surge (25%/23% YoY); however, their margins failed to improve. We attribute this to start up cost of 3-4 new plants (including Schierling plant: potential revenue of ~EUR300mn). Hence, we expect margin to improve in ensuing quarters. We lower our FY16/FY17E EPS 5% each to factor in weak Q1. We see further down side risks to our estimates if ramp of new plant is lower in SMR/SMP as well as slower recovery in India demand, given the high expectations. We had highlighted the above risks in our report, Expectations running high, dated 21 Apr 2015. Post the sharp run up in stock price, we downgrade to ‘REDUCE’ with SOTP-based target price of INR330", says Edelweiss research report.
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