IGI Logo

Firing on all cylinders; maintain Buy

* Q4FY21 EBITDA margin expanded by 150bps to 10.1%, above estimate of 9.7% on better margins in SMR, SMP and standalone divisions. Revenue grew 18% to Rs170bn, above estimate of Rs161bn. Outstanding order-book at SMR PBV surged to EUR15.6bn.

* Driven by better margins and improving demand outlook, we upgrade FY22/23 EPS estimates by 6%/13% to Rs10.5/Rs13.5, and introduce FY24 EPS forecast of Rs16.2. We expect ROE to improve to 29% by FY24E, compared to 10% in FY21.

* Our positive view is underpinned by strong management capabilities, expectations of a cyclical upturn in underlying Auto segments in domestic/global markets, healthy order-book in SMR PBV and improving profitability across divisions.

* Management has reaffirmed focus on Vision 2025 revenue target of USD36bn with ROCE of 40% vs. 2020 revenue (including SAMIL) of USD10bn. Retain Buy with a TP of Rs325 (Rs240 earlier) based on 24x FY23E EPS (20x earlier).

What we like?

1) SMR PBV order-book has increased from EUR13.1bn in Sep’20 to EUR15.6bn in Mar’21. Share of EVs (pure-EV programs) in order-book has increased to 25%,

2) Production levels are increasing and there has been incremental order-wins for SMP’s greenfield plants (Tuscaloosa and Kecskemet). These plants are EBITDA positive and are expected to achieve PBT breakeven in future.

3) Consolidated net debt has reduced from Rs69bn in Mar’20 to Rs48bn in Mar’21.

What we did not like?

In near term, underlying Auto industry is facing some challenges due to supply issues of semi-conductors. Expect the supply situation to improve in a quarter.

Earnings above estimates

Consolidated revenues (excluding DWH) grew 18% yoy to Rs170bn (est.: Rs161.3bn), above estimates led by better-than-expected sales in SMR, PKC and standalone divisions. EBITDA margin expanded by 150bps yoy to 10.1% (est.: 9.7%), above estimates, led by higher margins in SMR, SMP and standalone divisions. Overall, adjusted PAT increased to Rs7.1bn (est.: Rs4.7bn) in comparison to Rs1.8bn in Q4FY20. The effective tax rate was low at 7%, owing to deferred tax benefits relating to prior years for subsidiaries.

PAT beat was supported by higher operating profit and lower tax rate. In rupee terms, PKC, Standalone, SMP and SMR PKC divisions’ revenue grew yoy, by 31%, 28%, 16% and 10%, respectively. SMP margin expanded yoy, by 420bps and PKC was flat. In comparison, SMR contracted by 190bps and Standalone by 80bps. Discontinued operations (DWH) revenue grew 48% yoy to Rs15.1bn, EBITDA margin expanded 190bps to 15.8% and PAT grew 78% to Rs1.7bn.

Retain Buy

We build in robust revenue/EBITDA CAGRs of 14%/33% over FY21-24E, driven by expectations of a cyclical upturn in underlying Auto segments in domestic/ global markets and healthy order-book in SMR PBV. In addition, we expect ROE to expand notably from 10% in FY21 to 29% in FY24E. The proposed restructuring exercise aligns interests of all stakeholders and creates a platform for future growth through both inorganic and organic routes.

Reduced stake of Sumitomo Wiring Systems in MSS will allow to pursue acquisition opportunities more aggressively. This restructuring exercise is a step toward the company’s Vision 2025 – revenue target of USD36bn with ROCE of 40%.

Retain Buy with TP of Rs325 (Rs240 earlier) based on 24x FY23E EPS (20x earlier). We increase valuation multiple on improving growth prospects and revised P/E multiple is in-line with historical averages. Key downside risks are demand contraction in target markets, weak performance of larger clients, and adverse currency rates, among others.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

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