MSS has enviable track record of strong performance with unwavering focus on capital allocation. MSS has evolved as a partner of choice for almost all OEMs in the world, reflecting an increased share of business and market leadership in all key businesses that it operates. It is in sweet spot to benefit from evolving disruptive global automotive trends, which would drive its next wave of growth. MSS is now entrenched in the virtuous cycle of “scale begets scale”, as it would significantly benefit from OEMs focus on vendor consolidation. MSS has strong organic growth opportunities in international as well as domestic market driven by increase in content per vehicle, strong order book and entry in new markets/segment. We estimate MSS’ consolidated revenues/EBITDA/PAT to grow 22%/30%/33.5% CAGR FY17-20E. Consequently, we expect RoCE to improve to 21.2% in FY20 (14.7% in FY17). We initiate coverage with ‘buy’ rating and target price of Rs 458. The global automotive industry is at the cusp of disruption, led by megatrends in the form of (a) EVs, (b) connect cars, (c) autonomous cars, (d) shared mobility, (e) stricter emission norms, and (f) platform and vendor consolidation.
These trends have the potential to disrupt the automotive supply chain and challenge incumbents. We believe, with its diverse product base and market presence, MSS is set to leverage on these trends to drive its next wave of growth. In May 2015, MSS had shared its Vision 2020, targeting revenues of $18 b, RoCE of 40% and payout of 40%. Of the $18-billion revenues, it was expected organic revenues of $12.4 bn and balance $5.6 bn through M&A. M&A has been strategic tool for MSS to strengthen its relationship with customers and get more share of business. While acquisitions will play key role to attain revenue targets, management is very clear that acquisitions have to pass its 40% RoCE hurdle rate in 4-5 years.
