Motherson Sumi Systems Ltd – Improving core operating efficiencies
Key financial highlights:
Q1FY21 Consol. Revenues declined 49% YoY to INR 85bn against our estimate of INR 91bn. EBITDA stood at INR -6bn vs INR 13bn in Q1FY20. Net Loss for the period stood at INR 8bn which were in line with our estimates. Loss in revenue is attributable to lockdowns in various parts of the world where April & May 2020 were completely washed out.
Capacity utilization getting back to normalcy
Almost 84% of the plants are operating at 50% capacity on an aggregate level. Capacity utilization for July 20; plants in China, Korea, India, USA & Australia are operating at more than 75% capacities, while Europe is operating at 45% because of the summer holidays. We expect utilization to further improve in August 20 and gradually reach normal levels by December 2020.
Focus on operations; Greenfield plants breakeven in sight
Revenue from greenfield plants (Tuscaloosa & Kecskemét) stood at EUR 66mn (vs EUR 461mn in FY20). EBITDA losses were trimmed down to EUR 19mn (vs EUR 175mn in FY20) in spite of the decline in revenues due to Covid 19. During the lockdown, MSSL focused on improving its operating efficiencies by improvements undertaken in quality control, management team, manpower reduction, improving logistics across both plants. These efforts will enable them to reach EBITDA break even by Q3FY21.We expect revenues to normalize by Q3FY20 to INR 15bn - 16bn a quarter.
SMP on track to improve margins; PKC shows green shoots
Segmentally, revenues for SMR/SMP/PKC declined by 55%/49%/47% YoY to EUR 180mn/551mn/175mn on the back of lower sales. MSSL focused on improving efficiencies at the 2 greenfield plants, and we expect SMRP BV to reach EBITDA breakeven levels by Q3. For PKC, the commercial vehicle segment in China where it has signed 3 JVs targeting different customers showed very good signs of recovery during the quarter
Valuation & Outlook
Our positive view on MSSL remains intact on the back of execution of strong order book in coming quarters at SMRP BV, EBITDA breakeven for greenfield plants and a global recovery in the sector. We expect Earnings/ Adj. PAT to grow at a CAGR of 7%/21% over FY20-FY22E. Accordingly we revise our EPS target for FY21/FY22 to INR 3.9/5. Near term stock performance could be influenced by 1) how the demand recovery plays out; 2) what type of vehicles are sold. We upgrade our rating to BUY (earlier ACCUMULATE) with a TP of INR 130 based on 24x FY22 EPS, 20% upside from current levels
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