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Marginal miss at EBITDA due to higher other expenses

Management has guided for capex of INR2b for FY25 vs. INR1.1b in FY24

* Motherson Wiring’s (MSUMI’s) 4QFY24 result was marginally below estimate as EBITDA came in at INR2.9b (est. INR3.05b), up 34% YoY, led by higher other expenses. It is currently in the process of adding two new facilities, which will increase the existing capacity by 10-15%. This will get operational by 1QFY25.

* We slightly tweak our FY25 estimates to factor in for higher RM costs. Reiterate our BUY rating with a TP of INR80 (35x FY26E EPS).

EBITDA margin expanded sequentially despite higher commodity costs

* In 4QFY24, revenue/EBITDA/adj. PAT grew ~19%/34%/38% YoY to INR22.3b/ INR2.9b/INR1.9b (vs. est. INR22.9b/INR3.05b/INR1.9b). FY24 revenue/EBITDA/adj. PAT grew 18%/28%/31% YoY.

* Gross margins improved 160bp YoY (+40bp QoQ) to 34.9% (est. 34.7%). However, this was offset by higher other expenses, resulting in lower EBITDA margin at 13%, up 140bp YoY (est. 13.3%).

* Lower-than-est. other income was offset by lower tax, resulting in 38% YoY growth in Adj. PAT at INR1.9b (in line).

* The company declared a final dividend of INR0.8/share for FY24 (vs. INR0.65/share in FY23).

* FCFF for the year stood at INR6.8b (vs. INR259m in FY23) due to better operating cash flow of INR7.9b (vs. INR2.2b in FY23). Capex for FY24 stood at INR1.1b (vs. INR2b in FY23).

Highlights from the management commentary

* Healthy growth potential: Major OEM customers of MSUMI such as MSIL and TTMT, have announced their expansion plans. This, along with the entry of new players in India, provides a huge growth potential. This will be further supported by the premiumization and new facilities.

* The company is adding two new facilities which will increase the existing capacity by 10-15%. These will be operational by 1QFY25, with ramp up commencing in 3Q/4Q of FY25. The added capacities will cater to both ICE and EVs.

* Focus on maintaining RoCE - The group endeavors to consistently achieve RoCE of over 40%. It has reported RoCE of ~48% in FY24, up from ~44% in FY23. MSUMI is aligning with the addition of new capacities by OEMs. Also, there’s a focus on cost reduction, customer recoveries, and operational enhancements, such as extensive digitization efforts on the shop floors.

* The company has guided for capex of INR2b in FY25 vs INR1.1b in FY24, which will be allocated toward capacity expansion, quality enhancements, and maintenance.

* Revenue mix for FY24: PV/CV/Off road revenue contribution remains unchanged YoY at 58%/12%/10%, while the share of revenue from 2Ws improved to 14% from 12% in FY23.

Valuation and view

* We expect the EBITDA margin trajectory to continue expanding, led by better product mix and rising utilization rates in the new facilities starting from FY26 onwards. We believe MSUMI deserves rich valuations, given its strong competitive positioning, top-decile capital efficiency, and benefits of EVs and other mega trends in Autos.

* The stock trades at 37.1x/30.8x FY25E/26E EPS. We reiterate our BUY rating with a TP of INR80 (~35x FY26E EPS).

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