IGI Logo

Superlative return ratio profile with fundamental levers for secular growth amid increasing content/vehicle

About the stock: Motherson Sumi Wiring India (MSWIL) was established in 1986 as a JV with Sumitomo Wiring Systems (Japan). MSWIL is a leading, full-system wiring harness solutions provider in India catering to all major OEMs like Maruti Suzuki, Toyota Motors, Ashok Leyland, Tata Motors, etc. Listed on March 28, 2022.

? FY22 segment mix: PV: 60%; CV: 11%; 2-W: 12%; Others: 17%

? It has 23 plants in India with 40,000+ employees. It was recently carved out of the erstwhile Motherson Sumi (MSSL) at the behest of its JV partner

Key Highlights:

? Wiring harness acts as a nervous system of an automobile primarily used to transport an electronic signal. Content is pegged at ~2-3% of vehicle price

? Content/vehicle is set to gain from increasing application of electronics (ADAS, TPMS, connected vehicle, etc.) in automobile & even electrification

? Content/vehicle in EV is pegged at ~1.5-2x of ICE vehicle

? MSWIL works on asset light model with land & building leased from SAMIL

What should investors do: Since demerger, MSWIL’s share price has grown 31.5% (from ~| 64 in April 2022) vastly outperforming Nifty Auto index at same time.

? We bring MSWIL in coverage pursuant to de-merger and assign BUY rating amid structural levers for long term secular growth & ~50% RoCE profile

Target Price and Valuation: Introducing FY25E, we value MSWIL at | 105 i.e. 42x P/E on average FY24-25E EPS of | 2.5

Key triggers for future price performance:

? With pent up demand in PV space amid strong order book across OEMs & increasing consumer preference for advance technology enabled vehicles i.e. better wiring harness content, we build 18% sales CAGR over FY22-25E

? With increasing capacity utilisation levels and associated operating leverage at play, margins are seen improving to 13.5% by FY24E-25E

? FY22: Net cash positive b/s: | 280 crore, healthy CFO/FCF generation

Alternate Stock Idea: In our auto universe, we also like Mahindra & Mahindra.

* Focused on prudent capital allocation, UV differentiation & EV proactiveness

* BUY with target price of | 1,590

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer