Motherson Sumi share price doubles since March, and continues to soar; should you buy the stock now?

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Updated: Aug 12, 2020 2:39 PM

Our initial calculations indicate that the drop in MS’ profit share is ~7% for FY19.As of July Motherson Sumi’s plants were operating at over 75% utilization. In the month of August the number is expected to climb higher.

Beaten down by the bloodbath that equity markets witnessed in March, Motherson Sumi Systems shares have managed to surge over 110% from their lows on the back of strong fundamentals and resilient outlook. The stock was seen jumping over 6% to trade at Rs 115 per share on Wednesday. Motherson Sumi, an auto part manufacturer reported a consolidated net loss of Rs 1,191 crore in the April-June quarter as revenue from sale of product halved from the previous year. Most analysts had predicted that this mid-cap stock would soon recoup most losses and after doing exactly that, brokerages are still bullish on the stock. 

The joint-venture between Samvardhana Motherson International Ltd and Motherson group will soon be undergoing a corporate restructuring but operations are still to remain intact. Total income of the company in the previous quarter stood at Rs 8,551 crore, down from Rs 16,847 crore in the same period last year. The company beat street estimates with better than expected performance coming from the global businesses. EBITDA margins of Motherson Sumi stood at 7.4%.

However, with a strong order book the auto part manufacturer looks set to gain in the post coronavirus world, according to analysts. “Motherson Sumi Systems is well-positioned to come out of the crisis stronger, driven by its robust order book, for which it is already fully invested,” said analysts at brokerage firm Motilal Oswal. The brokerage firms said that Motherson Sumi is its preferred bet on global recovery in the auto industry, with a target price of Rs 135 apiece. The management of Motherson Sumi systems is expecting strong resurgence of demand in the current quarter with no major delays.

Further the company claims that its Hungary plant was ramped-up to its peak revenue potential. Net debt increased. Management informed investors that the consolidated net debt of the company increased to Rs 9,000 crore in June from Rs 6,900 crore in March this year, aided by the weak operating performance amid steep decline in revenues and adverse working capital cycle. However, liquidity remains strong with cash and cash equivalents worth Rs 4,100 crore and undrawn RCF limit of Rs 5,900 crore as of June.

As of July Motherson Sumi’s plants were operating at over 75% utilization. In the month of August the number is expected to climb higher. Analysts at Emkay Global expect earnings to grow CAGR 8%.21% till financial year 2023. “Our positive view is underpinned by strong management capabilities and expectations of a gradual pick-up in underlying segments. Also, the proposed restructuring exercise aligns interests of all stakeholders and creates a platform for future growth through inorganic and organic routes,” Emkay Global said in a report. The brokerage firm has a BUY rating on the stock with a target price of Rs 120 per share, increased from from Rs 115 apiece. 

(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.)

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