Buy Motherson Sumi Wiring India Ltd for the Target Rs 50 by Emkay Global Financial Services Ltd
We upgrade MSUMI to BUY from Add and raise TP by 11% to Rs50 from Rs45, at 30x Jun-28E PER (rolled forward), owing to the strong underlying revenue performance (ex-commodity impact) and margins. Underlying 1Q EBITDAM (excopper and minimum wage cost impact; assuming 50% pass through) stood at 10% vs reported 7.6%. MSUMI delivered an in-line 1Q, with reported revenue up 37% yoy (30% growth in underlying revenue, ex-7% copper price impact), with sustained outperformance vs key client MSIL. EBITDA was up 6% yoy, while reported EBITDAM fell by 60bps qoq as the 130bps qoq gross margin expansion was offset by a 210bps qoq rise in staff costs. Given the volatility in commodity prices, MSUMI is in active discussions with OEMs to reduce reset cycles to 1M vs 3M/6M currently. It expects to receive a cost pass-through for elevated staff costs. The 3 greenfields (at combined breakeven ex copper price change since 4QFY26) are expected to positively contribute to margins/bottomline after 1-2Q. We raise FY27-28E EPS by 3-3.5% to factor in strong topline print. MSUMI’s valuations at below 1SD (1YF PER) are attractive, with 25% FY26-29E EPS CAGR, ~50% ROCE, and 75% FY28E dividend payout
Strong top-line print
Revenue was up 37% yoy (1%/4% beat on our/street estimate) and was ahead of the 17% yoy PV production growth. EBITDA came in at Rs2.6bn (1%/7% below our/street estimates), with EBITDAM down by ~64bps qoq (along expected lines) to ~7.6%, as the 130bps qoq gross margin expansion was more than offset by a 210bps qoq rise in staff costs (due to hike in minimum wages in the NCR region).
Earnings call KTAs
1) Greenfield projects and successful ramp-up of new customer programs contributed to substantial revenue growth and enhanced customer confidence.
2) 3 more greenfields are now at run rate, with revenue and EBITDAM maintained at similar levels to 4Q, though their contribution to the bottom-line will take another 1–2 quarters to flow through.
3) MSUMI is witnessing a structural increase in the wiring harness content with the introduction of every new architecture.
4) Constructive discussions continue with customers to recover cost increases and maintain business momentum; some portion of MUSMI's material costs also relate to components specified by customers, so any price increases are negotiated and passed through to those customers.
5) 1Q currently reflects the full impact of the wage hike; the situation in other states remains to be seen, as there are early indications of similar moves elsewhere; wage hikes have been higher than anticipated.
6) Discussions are ongoing with customers, and MSUMI hopes to reach an agreement that is beneficial over the long term. It believes that OEMs acknowledge the manpower-intensive nature of the business, and that costs will be accommodated accordingly.
7) OEMs continue to build on existing architecture rather than create new ones at a far higher cost of development. MSUMI has not witnessed any de-contenting from OEMs so far; in fact, there has been a rise in new-architecture vehicles.
8) MSUMI will announce further capex plans over coming quarters (based on volume forecasts and production schedules given by OEMs). Capex for FY27 would be entirely funded by internal accruals.
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