Motherson Sumi reported consolidated net profit of Rs 310 crore, which was largely in line with our estimates but below consensus estimates. Standalone business disappointed with only 2% y-o-y growth while operational performance of SMRPBV was largely in line with our estimates. We maintain our cautious stance on the stock given potentially slower growth in the domestic market due to market share loss, only gradual improvement in SMP’s profitability over the next two years contrary to Street expectations and uncertainty shrouding the company’s high exposure to the VW group.
We maintain ‘sell’ rating with a revised target price of Rs 220 (from Rs 240).
Motherson Sumi reported 3QFY16 revenues of Rs 98.6 billion (+7.8% y-o-y), which was largely in line with our estimates. Standalone revenues increased by only 2% y-o-y, which was 4% below our estimates.
Given stronger growth in domestic passenger vehicle segment, lower revenue growth implies that the company is losing market share in domestic wiring harness segment. SMR reported 14% y-o-y growth in revenues in euro terms while SMP reported 19% y-o-y growth in euro revenues.
We note that 10% y-o-y growth in SMP’s revenues was led by the acquisition of Scherer and Trier in December 2014. Standalone business posted EBITDA margins (ex-forex) of 17.6% (down 200 bps q-o-q and up 40 bps y-o-y), which was 50 bps below our estimates. Gross margins improved by 120 bps y-o-y, but this was offset by 21% y-o-y increase in employee expenses.