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Guides for capex of up to INR33b in FY24

* MOTHERSO reported a healthy 1QFY24 performance as EBITDA grew ~72% YoY to INR19.2b (est. INR16.9b), led by operating efficiency and a softening in RM/energy prices. We believe the company should continue to benefit substantially from easing supply-side issues and receding cost headwinds, leading to strong growth and balance sheet deleverage.

* We have increased our FY24E EPS by 6% to factor in a better operating performance across businesses and lower tax, while we maintain our FY25E EPS. Currently, we do not build in the performance of new acquisitions in our consolidated estimates. We maintain BUY with a TP of INR115, based on Sep’25E SOTP including INR12/share for recent acquisitions.

Reported double-digit revenue growth in all business divisions

* Consolidated business performance: Revenues grew 27% YoY to INR224.6b (est. INR217.9b). EBITDA increased by 72% YoY to INR19.25b (est. INR16.9b) and adj. PAT grew 3.25x YoY to INR6b (est. INR4.4b). Revenue from acquisitions stood at INR260m in 1QFY24.

* Wiring harness business grew by 25% YoY to INR76.3b (in line) and EBITDA margins improved 230bp YoY (+60bp QoQ) to 10.2% (est. 8.5%).

* Modules & Polymer business revenue grew 27% YoY to INR119.8b (est. INR115.7b) and EBITDA margins improved 240bp YoY (+30bp QoQ) to 7.5% (est. 6.9%).

* Vision system revenues grew 32% YoY to INR46.15b (est. INR44.8b) and EBITDA margins expanded 100bp YoY (-380bp QoQ) to 9.4% (est. 9%).

* Other business grew 12% YoY to ~INR18.1b (est. INR17.8b) and EBITDA margins expanded 30bp YoY (-160bp QoQ) to 11.3% (est. 11%).

* Net debt (ex. lease liab) grew QoQ to INR83.1b (vs. INR74.4b in 4QFY23) due to the accumulation of engineering inventory for programs that are yet to start commercial production and INR1.5b in payouts for acquisitions in 1Q.

Highlights from the management commentary

* Six strategic acquisitions have been announced since April’23, with annual revenue of USD1.5b. Three of them have already been closed. The company has also closed seven acquisitions since April’23, with annual gross/net revenue of ~USD4.9b/USD1.1b. CIRMA, Yachiyo and Dr. Schneider are still pending.

* Incurred capex of INR7.67b in 1QFY24: The company has guided for capex of up to INR33b in FY24, to align with customer-led programs and a planned expansion in India, including three plants for emerging businesses.

* EV revenue increased to INR16b in 1QFY24 (vs. INR49b in FY23).

* Emerging businesses: i) Aerospace- Started supplying new product range of tubes, pipes and sheet metals; ii) Logistics- SAMRX has won orders from two major auto OEMs in India; iii) Precision metal & modules- Mandating HVACs in trucks from 2025 onward in India should help increase content per vehicle.

Valuation and view

The stock trades at reasonable valuations of 22x/19.5x FY24E/FY25E consolidated EPS. Our positive view on MOTHERSO remains intact based on an industry recovery, execution of a strong order book for SMRPBV, receding cost inflation, and capacities in place for growth. We reiterate our BUY rating with a TP of INR115, premised on Sep’25E SOTP including INR12/share for recent acquisitions.

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