Stock corner: ‘Buy’ on Motherson Sumi, Q2 results were ahead of estimates

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Published: November 18, 2019 2:17:56 AM

We maintain SMP’s revenue CAGR at ~5% for FY20-22F, as new plants ramp up. SMP’s margin (ex-SMRC and new plants) was at 9.8% in Q2FY20 (up 120bps q-o-q/50 bps y-o-y). Hence, as new plants turn around, we expect overall SMP margins to touch ~8% in FY22F (7.5% earlier).

Stock corner, Buy, Motherson Sumi, Q2 result, Motherson sumi, Motherson sumi system limited, Motherson sumi noida, Motherson company, Motherson share price, Motherson sumi infotech, Motherson sumi news, Motherson sumi systemsStandalone revenue declined 17% y-o-y due to weak OE production; however, other subsidiaries reported modest growth–revenue up 2.4% for SMR, 12% for PKC and 20% for SMP.

Q2Fy20 consolidated Ebitda at Rs 13.2 bn (margin 8.3%) was ~6% higher than Nomura (margin 7.8%) and 9% higher than consensus (margin 7.4%). While standalone Ebitda margins disappointed at 15.1% (Nom 16.7%), other subsidiaries surprised positively (SMP 3.6%; SMR 11.1%; PKC 11.7%).

> Standalone revenue declined 17% y-o-y due to weak OE production; however, other subsidiaries reported modest growth–revenue up 2.4% for SMR, 12% for PKC and 20% for SMP.

> Given the steep slowdown in the PV industry, we now factor in 4% y-o-y revenue decline for the standalone business in FY20F (2% earlier). Management indicated content per vehicle can jump in double digits under BS-6; hence, we expect revenue growth to improve to ~14%/17% y-o-y in FY21F/22F, also as industry recovers.

> We maintain SMP’s revenue CAGR at ~5% for FY20-22F, as new plants ramp up. SMP’s margin (ex-SMRC and new plants) was at 9.8% in Q2FY20 (up 120bps q-o-q/50 bps y-o-y). Hence, as new plants turn around, we expect overall SMP margins to touch ~8% in FY22F (7.5% earlier).

> Overall, our Ebitda is largely unchanged in FY20/21F but revised up by 4% in FY22F. However, our EPS is revised up by 5%/ 8%/16% over FY20-22F to factor in lower tax rate of 25% in India business.

> MSS’ capex cycle is largely over in FY19, and we expect healthy Rs 16 bn/22 bn of FCF in FY20-21F. This implies 4%/5% FCF yields in FY20-21F, which is attractive.

Valuation: The stock currently trades at ~19.7x FY21F EPS of Rs 6.8. We raise our TP to Rs 158 (Rs 131 earlier) based on target P/E of 20x on FY22F EPS, discounted to Sep-20F (Jul-20F earlier).

 

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