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Raises capex to cater to growth in India; SMRPBV order book at EUR19.7b

* MOTHERSO’s 4QFY23 performance significantly beat our estimates, driven by improving supplies across key markets, resulting in margin gains across businesses. MOTHERSO will continue to benefit substantially from easing supply-side issues and receding cost headwinds, leading to strong growth and balance sheet deleverage.

* We maintain our FY24/FY25 EPS estimates and our BUY rating with a TP of INR100 (premised on Mar’25E SOTP).

Strong recovery in revenue drives margin gains

* Consolidated business performance: Revenue grew 31% YoY to INR224.8b (est. INR215.2b). EBITDA increased 65% YoY to INR20.2b (est. INR16.5b) and adj. PAT jumped 3.6x YoY to INR6.5b (est. INR4.6b). FY23 revenue/ EBITDA/PAT grew 22%/25%/90% YoY.

* Strong revenue growth was driven by easing supplies across markets and healthy demand. Margin recovery was driven by a decline in energy prices, partial pass-through of inflationary pressures and operating leverage.

* Wiring harness: Revenue grew 26% YoY to INR74.7b (est. INR69.1b). EBITDA margin expanded 20bp YoY (+100bp QoQ) to 9.6% (est. 9%).

* Modules & Polymer: Revenue grew 31% YoY to INR121.1b (est. INR114.8b). EBITDA margin gained 140bp YoY (+60bp QoQ) to 7.2% (est. 6.5%).

* Vision system: Revenue rose 26% YoY to INR45.95b (est. INR46.6b) and EBITDA margin grew 390bp YoY (+320bp QoQ) to 13.2% (est. 10.8%).

* Other businesses grew 22% YoY to ~INR18.2b (est. INR17.3b) and EBITDA margin expanded 200bp YoY (+150bps QoQ) to 12.9% (est. 10.9%).

* FY23 FCFF stood at INR24.6b (v/s INR264m in FY22), led by improved CFO (INR46.4b v/s INR24.6b in FY22) and lower capex (INR21.8b v/s INR24.4b in FY22).

* The board has declared a final dividend of INR0.65/share in FY23 (similar to FY22 levels).

Highlights from the management commentary

* PV production in developed markets was 20% below pre-Covid levels, implying limited downside due to macro uncertainties. Emerging markets are back to the pre-Covid level.

* SMRPBV’s net order book increased to EUR19.7b (v/s EUR18.2b in 2QFY23 and EUR16.1b in 4QFY22), with EVs accounting for 39% of orders.

* Capex of FY24 is expected to be INR30b (v/s INR21.8b in FY23) to support growth, especially in the Indian market. It is investing in seven greenfield plants (six in India and three for emerging businesses).

* Net debt (ex lease liabilities) was down INR10b QoQ to INR74.7b. It expects further moderation in working capital, as supply chain improves.

Valuation and view

* The stock trades at reasonable valuations of 20.7x/16.8x FY24E/FY25E consolidated EPS. With high operating leverage, reasonable financial gearing and no risk of EVs, MOTHERSO is our preferred pick in the auto component industry. We reiterate our BUY rating with a TP of INR100 (Mar’25E based on SOTP)

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