Beaten down by Coronavirus, this mid-cap auto-parts stock may surge 100% soon

By: |
March 20, 2020 4:22 PM

The Coronavirus tide, that has washed away gains made across sectors, has painted all the stocks with the same brush. Some shares that were due for correction have tanked but others with sound fundamentals are going with them.

Motherson Sumi, investment tips, where to invest, analyst cornerThe near-term stock performance could be influenced by development on coronavirus. (Image: Reuters)

The Coronavirus tide, that has washed away gains made across sectors, has painted all the stocks with the same brush. Some shares that were due for correction have tanked but others with sound fundamentals are going with them. One such stock is Motherson Sumi, a joint-venture between Samvardhana Motherson International Ltd and Motherson group, manufacturing wiring harnesses and auto parts. Down close to 60 per cent since the start of this year, the auto-parts manufacturer is being dubbed by brokerages as one of those businesses that will rebound soon. 

Although Motilal Oswal has lowered its FY21/22 earnings per share by 15-18 per cent factoring in near-term volume weakness, the brokerage maintains a positive view of Motherson Sumi aided by execution of strong order book and recovery in India. “While these shutdowns can hurt near-term volumes, management indicated that OEMs may make up for the current loss by reducing normal shutdowns of August,” said Motilal Oswal.

Pinning an upside of 75 per cent on the share price of Rs 62, Motilal Oswal adds, “The near-term stock performance could be influenced by development on coronavirus and the ongoing restructuring exercise.” Motherson Sumi’s share price is down Rs 100 from its 52-week-high. Motilal Oswal is expecting revenue to grow at 0.4 per cent in 2020 but is estimating the same will zoom to 6.1 per cent in 2021, while profit after tax is being pegged to grow at a 34 per cent growth rate.

Out of the 27 plants that the company operates in China 26 are operating normally, with the one exception working at a 25 per cent utilisation. The company’s plants in India are fully functional and the ones in the United States are not looking to close down. However, manufacturing units in Europe are slowly closing doors as Europe continues to rattle under Coronavirus. PKC, a wholly-owned firm by Motherson Sumi has reported all its facilities are operational.

Although raw material inflow is being affected across the globe with broken supply chains, Motherson Sumi has that area covered. “Raw material for MSSL comes from suppliers like Sumitomo and Reliance (Polymer), and 90 per cent child parts are made in-house. The company is not facing sourcing issues and will continue to supply to OEMs,” said JM Financial, another brokerage with a ‘buy’ call on Motherson Sumi. The company is strong fundamentally, having enough liquidity to honour all commitments. Highlighting a huge upside for auto original equipment manufacturers, JM Financial said, “Vehicle OEMs’ mood is upbeat as the current disruption may shift customer preference away from shared mobility to personal cars.”

The biggest upside on Motherson Sumi is being pegged by ICICI Securities, with a target price of Rs 127 per share translating to 104 per cent. “We continue to like MSS due to strong competitive position (tier-1 supplier) across regions, segments & products, opportunities to increase content per vehicle and improving financials as greenfield plants stabilise,” said ICICI Securities.

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Burger King looks to raise Rs 810 crore via IPO
2Write-down of LVB bonds may hit private-sector tier-II issuances
3Sensex, Nifty close in red; will stock markets continue gaining next week? Here’s what experts say