IGI Logo

Buy Motherson Sumi Systems Ltd For Target Rs.270

Well placed to capitalise on global PV recovery…

About the stock: Motherson Sumi (MSS) primarily serves global PV industry with wiring harnesses, vision systems (mirrors) & plastic body parts as key product lines.

* History of successful turnarounds in acquisitions and inorganic-led growth

* SMRPBV order book was at €15.6 billion as of FY21.

Q1FY22 Results: The company posted muted Q1FY22 results.

* Consolidated net sales dipped 6.6% QoQ to | 17,271 crore

* Margins stood lower by 287 bps sequentially to 7.7%

* Consequent consolidated PAT stood at |290 crore, down 59.4% QoQ.

What should investors do?

MSS’ stock price has grown at ~10% CAGR from ~| 145 levels in August 2016, widely outperforming the Nifty Auto index.

* We retain BUY rating on global PV premiumisation play, EV neutral products

Target Price and Valuation: We value MSS at 30x P/E on FY23E basis for a revised target price of | 270 (earlier | 300).

Key triggers for future price performance:

*  Backed by healthy expected revival for worldwide OEM client volumes and strong orderbook, we expect 12.6% FY21-23E net sales CAGR

* Minimal EV risk, with share of EV within orderbook at 25% (FY21)

* Focus on higher content per vehicle to gain further traction

* Margins seen rising to 10.8% by FY23E on the back of higher capacity utilisation at greenfield plants and general operating leverage benefits

* Well poised to post ~20% RoCE by FY23E

Alternate Stock Idea: Besides MSS, in our ancillary coverage we like Apollo Tyres.

* India CV revival beneficiary focused on debt reduction, higher return ratios

* BUY with a target price of | 275

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

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