IGI Logo

Strong performance in SMP / India; raising estimates

Strong order book in SMRPBV, recovery in India PV/US CV improves visibility

* MSS’ 4QFY21 performance was a beat led by strong performance in India and SMP, as well as lower tax. MSS would continue to benefit from a cyclical recovery in its key businesses as well as from a strong order book and improving efficiencies in SMRPBV.

* We upgrade our FY22E/FY23E EPS by 16%/20%, factoring in a strong recovery in SMP, India, and PKC, as well as a lower tax rate. We maintain our Buy rating with a TP of ~INR300 per share (Mar’23E SoTP).

Strong recovery continues, driving debt reduction

* Our analysis includes Wiring Harness in India and consolidated financials to make it comparable and relevant to the current listed entity.

* Consolidated revenue/EBITDA/adjusted PAT grew 19%/44%/290% YoY to INR179.9b/INR20b/INR7.1b in 4QFY21. The same in FY21 declined 5%/4%/8% to INR602b/INR49.7b/INR10.7b.

* India standalone business grew 33.5% YoY (+11% QoQ) to INR23b (est. INR21.7b). EBITDA margin improved 70bp YoY (+10bp QoQ) to 18.5% (est. 17.2%). Higher tax restricted PAT to ~INR2.45b (est. INR2.3b), a decline of 36.5% YoY.

* Revenue from SMP grew 6% YoY to ~EUR991m (est. EUR935m). EBITDA margin expanded 450bp YoY (-80bp QoQ) to 8.7% (est. 7.3%). Revenue declined 13% YoY to EUR3.5b in FY21.

* Revenue from SMR was flat YoY at EUR371m (est. EUR349m) and EBITDA margin declined 170bp YoY (30bp QoQ) to 12.9% (est. 12.8%). Revenue declined 16.5% YoY to EUR1.3b in FY21.

* Revenue from PKC grew 21% YoY (10% QoQ) to EUR314m (est. EUR290m) and EBITDA margin was flat YoY (-140bp QoQ) at 8% (est. 9.8%). Revenue declined 13% YoY to EUR1.04b in FY21.

* SAMIL’s business performance (pro-rata basis) continues to recover, with 4QFY21 revenue growing 16% QoQ to INR6.4b and EBITDA margin at 11.4% (-230bp QoQ). Net debt stood at INR12.9b.

* Consolidated net debt stood at INR60.9b v/s INR75.2b QoQ, driven by strong operating performance and reduction in working capital at SMRPBV.

* It declared a dividend of INR1.5/share for FY21 (same as FY20).

Highlights from the management commentary

* The order book for SMRPBV witnessed a sharp improvement in 2HFY21, with gross new order intake of EUR4.5b and net order book of EUR15.6b (v/s EUR13.1b as of Sep’20). BEVs constitutes 25% of the order book.

* India DWH: Copper price inflation has a lower impact on DWH margin due to a favorable mix as 2Ws/PVs have lower copper content than CVs and supported by cost pass through.

* PKC: Margin was impacted due to copper price inflation as pass through comes with a lag (3-6 months) and copper content is higher in CVs. Strong demand recovery led to supply-chain challenges, resulting in higher cost.

* Performance of SMP’s greenfield plants continues to improve in both the US and Hungary. It expects to break even at the PBT level very soon.

* SMRPBV capex: FY22E capex should be EUR200-225m (including maintenance capex of EUR150-175m) for supporting a new program and productivity improvements. The management reiterated that the order book of EUR15.6b doesn’t require any greenfield plant.

Valuation and view

* Our positive view on MSS remains intact (cyclical recovery + turnaround in the greenfield plant + execution of a strong order book of SMRPBV)

* The stock trades at 30.9x/23x FY22E/FY23E consolidated EPS. We have increased our target P/E multiple for SMRPBV and PKC to 23x (v/s 20x earlier) due to improved visibility of a sustained recovery. We maintain our Buy rating with a TP of ~INR300 per share (Mar’23E SoTP).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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