Motherson Sumi (MSSL) is one of IIFL’s Top 5 large- cap Buy ideas for 2017. MSSL’s India revenue will outpace industry volume growth led by increasing electronic content per car and new order wins. Higher share with Maruti/ Hyundai will soften the impact of demonetisation. SMR and SMP won orders worth EURO 10 billion in the past year and a half; this is 2.5x their annual revenues.
SMR and SMP have been gaining market share in their respective categories, supported by order wins and new plants. We forecast 19% 3·year EPS Cagr. Value·accretive acquisitions with turnaround potential may drive upside to our estimates.
MSSL derives 51% of its profits from outside India. As a result, it is relatively less exposed to the negative effects of demonetisation. Even within India, MSSL has higher exposure to Maruti and Hyundai, which are doing relatively better than peers.
MSSL has won orders for new models; these models are doing very well in the market place. Revenue growth had suffered in the past few years due to falling JPY and copper price, pass-through of which resulted in lower ASP. These have now started to reverse, which will drive higher ASP, and hence, revenue growth.
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We expect revenue of SMP and SMR to grow at 14% Cagr over FY16-FY19, driven by new orders and supported by multiple new plants. One of the key drivers of growth would be Daimler. Revenues from Daimler have gone up 3x in the past two years.
Given uncertainty in the domestic auto industry due to demonetisation, we believe MSSL is better insulated compared with peers.