Motherson Sumi Systems Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Auto Ancillary

Company

Motherson Sumi Systems Ltd

Reco Price
Rs. 377.50
Price Target (1 Year)
Rs. 454.00
Upside
20.26%

Date

March 29, 2017
Sensex
29531.43
CNX Nifty
9143.80

Exchange

Code

NSE
MOTHERSUMI
BSE
517334

Capacity expansion and multiple acquisitions to bolster growth, organically as well as inorganically.

Acquisition of PKC to expand Motherson Sumi Systems Ltd.’s (MSSL) presence:
The proposed acquisition of PKC supports MSSL in expanding its presence in the niche market of global wiring harness business for commercial vehicles. The combination is expected to be highly value accretive as there is minimal overlap between their existing operations in terms of geographical presence and great synergies in product segments which will unlock the true potential of the combined entity.

PKC has a strong presence in the American & European wiring harness market for commercial vehicle segment which will provide new opportunities for MSSL to grow in these geographies. This will be in line with MSSL’s stated Vision 2020. MSSL also believes it can help PKC in achieving its expansion opportunities given MSSL’s strong market position in the Asia Pacific region which is a highly attractive market for almost all leading commercial vehicle manufacturers.

Other recent acquisition to support growth too:
1) Acquisition of Kobek Siebdruck GmbH & Co. KG:
SMRPBV (Samvardhana Motherson Automotive System group B.V.) would be able to leverage the potentials of the unique lighting technology of Kobek, combining it with its product portfolio to add value and provide innovative solutions to its customers. SMP Group, through one of its subsidiaries already delivers illuminated/non-illuminated interior in-mold decoration parts for some of the Global platforms. This acquisition will enhance the product portfolio with more value addition and increased vertical integration.

2) Acquisition of control stake in Celulosa Fabril (CEFA) S.A:
MSSL, through its subsidiary acquired a majority control over the board of CEFA. As a result of above event, the company (through its subsidiaries) is regarded a parent of CEFA and accordingly CEFA along with its subsidiary Modulos Ribera Alta S.L.U. (MRA) is treated as a subsidiary of the MSSL. Celulosa Fabril (CEFA) S.A produces polymer-based parts for passenger cars, commercial vehicles and light trucks, apart from its portfolio being focused on interiors like instrument panels, door panels, floor consoles and trunk trims which will help MSSL to enhance its product portfolio and increase geographical presence.

Increase in Capex:
The company has plans to open 9 new plants (3 in India, 6 outside) in FY18. The management has retained its revenue guidance - from $5 Billion in FY15 to $26 Billion by FY20 through a mix of organic and inorganic (65:35) contribution, respectively. MSSL is aiming for a 3Cx15 strategy, which means that no country, customer or component should contribute >15% of revenues, thereby reducing its concentration risk.

Increasing content per car:
The company is focused on giving the best suited solution to its customers. In this process, the core focus is to increase the content per vehicle which would boost the revenues going forward. The company is also looking to serve more geography, get newer technologies and make new acquisitions to support organic and inorganic growth.

Strong Management:
Vivek Chaand Sehgal, executive chairman of the auto components manufacturer Samvardhana Motherson group has been named EY Entrepreneur of the Year for 2016. Sehgal co-founded the auto components manufacturer Samvardhana Motherson Group in 1975, which registered $7.2 Billion worth of revenue in FY2016. Motherson’s joint venture with Sumitomo proved profitable, especially as the supplier of wiring harnesses to Maruti Suzuki, which began production in 1983. In the past twenty years, Motherson has grown over 1800 times, despite the Asian crises, the attacks of 9/11 and the global financial crisis.

Stock Data

CMP (Rs)
379.50
Face value (Rs)
1
52 Week Range (Rs)
375.00 - 240.60
Market cap (Rs Crores)
53755.64
Price To Book Value (x)
6.69
P/E Ratio
67.87
EV/EBIDTA (x)
13.98

One Year indexed Stock Performance

Motherson Sumi Systems LtdSensex
Motherson Sumi Systems Ltd
Return (%)
1m
6m
12m
36m
Absolute
8.37
23.82
53.96
122.75
Sensex
2.74
6.12
18.60
31.92

Shareholders

(in %)
31-Dec
Promoter
63.10
Public
36.90
Others
0.00
Total
100

+91 22 6639 3000
research@stockaxis.com

 

Industry

Turnover of the Indian auto component sector stood at $39 Billion in FY15-16; the industry is expected to reach $115 Billion by FY20-21. The growth of global OEM sourcing from India and the increased indigenisation of global OEMs is turning the country into a preferable designing and manufacturing base.

Profile

Motherson Sumi Systems Ltd. (MSSL) is one of the world’s fastest growing specialized automotive component manufacturing company for OEMs. It was established in 1986 and is a joint venture between Samvardhana Motherson Group and Sumitomo Wiring Systems (Japan). MSSL is a focused, dynamic and progressive company providing customers with innovative and value-added products, services and solutions.

With a diverse global customer base comprising of almost all leading automobile manufacturers globally, the company has a presence in 26 countries across six continents. MSSL is currently the largest auto ancillary in India and among the Fab 50 companies of India by Forbes magazine. MSSL is the flagship company of the Samvardhana Motherson Group (SMG) which is ranked 31st among global automotive suppliers by Automotive News.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure<
  • EBITDA
  • % Margin
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Tax
  • Profit After Tax
  • Minority Interest
  • Share of Associate
  • Consolidated Net Profit
  • Adjusted EPS
  • 30427.90
  • -
  • 28030.80
  • 2397.10
  • 7.88
  • 310.60
  • 2707.70
  • 294.30
  • 2413.40
  • 817.20
  • 1596.20
  • 0.00
  • 499.40
  • 1096.80
  • -331.60
  • -0.20
  • 765.00
  • 5.78
  • 34673.10
  • 13.95
  • 31829.20
  • 2843.90
  • 8.20
  • 376.40
  • 3220.30
  • 317.80
  • 2902.50
  • 920.60
  • 1981.90
  • -164.80
  • 525.60
  • 191.50
  • -429.40
  • 0.40
  • 862.50
  • 6.52
  • 38395.20
  • 10.73
  • 34940.90
  • 3454.30
  • 9.00
  • 320.90
  • 3775.20
  • 270.60
  • 3504.60
  • 1135.70
  • 2368.90
  • -29.10
  • 583.60
  • 1756.20
  • -482.30
  • -0.20
  • 1273.70
  • 9.63
  • 43213.00
  • 12.55
  • 38922.20
  • 4290.80
  • 9.93
  • 36.00
  • 4326.80
  • 215.00
  • 4111.80
  • 1112.00
  • 2999.80
  • 0.00
  • 899.94
  • 2099.86
  • -576.68
  • -0.20
  • 1522.98
  • 11.51
  • 51170.00
  • 18.41
  • 45759.00
  • 5411.00
  • 10.57
  • 63.20
  • 5474.20
  • 290.00
  • 5184.20
  • 1205.67
  • 3978.53
  • 0.00
  • 1193.56
  • 2784.97
  • -764.83
  • -0.20
  • 2019.94
  • 15.27
Source: Stockaxis Research, Company Data

Valuation

Going ahead, we believe that the demand revival in the Indian automotive segment will act as an additional lever of earnings growth for MSSL, as its performance has been commendable despite the challenges in the business. Subsidiaries SMR, SMP contribute more to the bottomline considering the strong EBITDA performance of recent quarters. We believe overall return ratios are likely to improve, going ahead. The management targets a 40% RoCE by 2020, which will be achieved via the inorganic route of expansion, going forward.

We Initiate ‘BUY’ on attractive valuations with Target Price of Rs 454 based on 29.74x FY18E EPS. The stock trades at 32.80x FY17E and 24.73x FY18E EPS.

 

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