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Gradual recovery in sales, margins going forward…

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 €15.3 billion as of H1FY22

Q2FY22 Results: The company posted a mixed performance in Q2FY22.

* Consolidated net sales (including DWH) fell 10.4% QoQ to | 15,476 crore

* Margins were lower by 43 bps sequentially to 7.3%

* Consequent consolidated PAT was at | 217 crore, down 25.1% QoQ

* Indian entities’ performance better than overseas subsidiaries (SMR, SMP)

What should investors do? MSS’ stock price has grown at ~14% CAGR from ~| 130 levels in November 2016, widely outperforming the Nifty Auto index.

* We downgrade the stock from BUY to HOLD amid slower than anticipated recovery in PV auto volumes globally amid persisting chip shortage

Target Price and Valuation: We value MSS at 33x P/E on FY23E EPS of | 8.5 for an unchanged target price of | 280.

Key triggers for future price performance:

* Backed by a revival of worldwide OEM client volumes, strong order-book and EV neutral product profile, we expect 11.5% FY21-23E net sales CAGR

* Share of EV within order-book at 27% as of H1FY22

* Focus on higher content per vehicle to gain further traction

* Margins seen rising to 10.6% by FY23E on the back of higher capacity utilisation at greenfield plants and general operating leverage benefits

* Well poised to post ~19% 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

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