Motherson Sumi’s (MSS) Q1FY16 Ebitda came ~7% lower than estimate due to disappointment in standalone and below estimate margin at 17.3% (18% estimate).
Motherson Sumi’s (MSS) Q1FY16 Ebitda came ~7% lower than estimate due to disappointment in standalone and below estimate margin at 17.3% (18% estimate). Management attributed this to adverse currency in exports and drop in commodity costs. SMR/SMP sustained healthy revenue surge (25%/23% YoY); however, their margins failed to improve. We attribute this to start up cost of 3-4 new plants. Hence, we expect margin to improve in ensuing quarters. We lower our FY16/FY17e EPS 5% each to factor in weak Q1. We see further down side risks to our estimates if ramp of new plant is lower in SMR/SMP as well as slower recovery in India demand, given the high expectations. Post the sharp run up in stock price, we downgrade to ‘reduce’ with target price of Rs 330.
We are factoring in strong FY15-FY17e revenue CAGR of 26/19/25% for standalone/SMR(EUR)/SMP(EUR).
Similarly, we are assuming robust margin improvement across businesses given the expected recovery in domestic market and SMR/SMP order books. Hence, we see higher downside risk to our estimates.