Motherson Sumi: Maintain ‘buy’ with lower target price of Rs 118

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Published: June 5, 2020 7:56 AM

Overall, we cut our consolidated revenue estimates by ~8% and Ebitda by ~12% in FY22F.

For the standalone business, we factor in revenue growth of -9%, +28% and Ebitda margins at 14.3%/17% for FY21F/22F.

Motherson Sumi Systems’ Q4FY20 consolidated Ebitda at Rs 1,390 crore (margin 9.2%) was significantly ahead of our forecast and the Bloomberg consensus estimate (Nom: Rs 890 crore; Cons: Rs 970 crore). While standalone revenues were 7% below, higher margins at 16.9% (Nom: 16.4%) helped Ebitda to be in line. MSS also reduced net debt to Rs 6,900 crore from ~Rs 8,000 crore in FY19. Standalone revenue declined 13% y-o-y as OE production was down 18% y-o-y. All global subsidiaries performed well ahead of our estimates, helped by cost reduction and lower commodity prices — SMP revenues /margins at €931 million/3% (Nom: 867, 0.6%). SMR €371 million/14.6% (Nom: 337, 10%), PKC €259 million, 6.9% (Nom: 220, 4%)

For the standalone business, we factor in revenue growth of -9%, +28% and Ebitda margins at 14.3%/17% for FY21F/22F. Nearly, all plants are operational now (Fig. 2 ). The management expects a strong rebound in H2FY21, helped by demand for personal mobility. Also, they are hopeful of a strong improvement at Alabama plant which has been loss making. The management targets revenues of $30-35 billion over the next five years for the MSS group (from $12 billion in FY20). MSS will target new areas like IT, healthcare, defence, aerospace and logistics to achieve it, upside from which has not been factored in our estimates.

Our revenue growth and margin assumptions for key businesses for FY21F/22F are 1) SMP: (-15%/+20%, 3% /6.5%), 2 SMR (-10%/ +16%,10.5% /12%), PKC (-15%/ 23%, 7.3% /9.1%). Overall, we cut our consolidated revenue estimates by ~8% and Ebitda by ~12% in FY22F. Thus, we cut our EPS estimates by ~72%/27% in FY21F/22F. We note that MSS’s capex cycle is largely over, and expect a healthy FCF of Rs 1,100 crore/Rs 2,100 crore (adjusted for MSS share) in FY21F/22F. This implies 3%/6% FCF yields in FY21F/22F, which is attractive, in our view.

The stock currently trades at ~17.8x FY22F EPS of `5.7. We maintain our target P/E multiple of 20x, mid-point of historical trading band, and roll forward our valuation from Mar-22F to June-22F to arrive at our lower TP of `118 (`158 earlier). We maintain our ‘buy’ rating for the stock.

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