Retain buy on Motherson Sumi; it's a solid multi-year story: UBS

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26 Aug, 2025 12:21

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Moneycontrol Bureau

UBS is positive on Motherson Sumi Systems as a compelling multi-year story, driven by a strong 24 percent EPS CAGR over the FY16-19 period. It has maintained buy rating on the stock with a target price of Rs 356.

The brokerage house says Motherson remains one of the best exposures to growth in India's car market given its dominant market share in the wiring harness business. It believes in the margin improvement story at company's subsidiary Samvardhana Motherson Peguform (SMP) and expects international business growth to remain robust.

It believes the management has a solid track record of generating shareholder value by turning around distressed assets.

Motherson Sumi Systems is the flagship company of the Samvardhana Motherson Group. Samvardhana Motherson Peguform supplies interior and exterior products for automotive and related industries while Samvardhana Motherson Reflectec (SMR) develops rear vision systems for the international automotive industry.

UBS says subsidiary SMR continues to gain share in the US market and in the overall global market for external-view mirrors. It expects MSS's India business to grow faster than domestic car production driven by increased value growth in the wiring harness business, as premiumisation and safety and emission norms drive increased electronic content.

SMP's growth should be supported by the ramp-up of new green-field facilities in Germany, Mexico and China, says the brokerage house that expects SMP's EBITDA margin to improve by about 200 basis points over FY16-19 as new facilities ramp up, production levels in Brazil improve, and legacy contracts fall away.

Management successfully turned around MSS Wiring System Inc (formerly the Stoneridge wiring harness business) and Samvardhana Motherson Innovative Autosystems (formerly Scherer & Trier Group) in their first full years of operation.

UBS believes this underscores management's strong due diligence and its strong operational improvement and integration capabilities. It also believes that the global auto component space still offers opportunities for disciplined companies like Motherson Sumi to create further value through mergers & acquisitions.

The company aims to achieve about USD 18 billion in revenue by FY20, with 50 percent of the incremental growth over the FY15-20 period coming from acquisitions, with a key focus on increasing exposure to the US market.

In FY16, Motherson posted consolidated revenue of Rs 38,033 crore and profit of Rs 1,274 crore, a growth of 10 percent and 48 percent over revenue of Rs 34,490 crore and profit of Rs 862 crore in previous financial year, respectively. In half year ended September 2016, profit increased 19 percent to Rs 664 crore and revenue jumped 16 percent to Rs 20,370 crore compared with year-ago period.Posted by Sunil Shankar Matkar