Buy Motherson Wiring Ltd for the Target Rs.41 by Motilal Oswal Financial Services Ltd
Demand remains strong; margins set to bottom soon
Motherson Wiring (MSWIL) has corrected ~25% over the past year, driven primarily by margin pressure rather than any deterioration in its growth outlook. Elevated copper prices and a lag in customer pass-through, a slower-thanexpected ramp-up of greenfield facilities, and the minimum-wage hike in the NCR region have been the key drivers of margin contraction. We believe these headwinds are largely transitory. Despite rising copper prices, the catch-up in cost pass-through should support margins, while improving utilization at greenfield facilities should drive a recovery in profitability through 2HFY27. The medium-to-long-term thesis remains unchanged. MSWIL has consistently outgrown underlying passenger-vehicle production, supported by its marketleading position in India’s wiring harness industry, deep relationships with leading OEMs, and strong execution capabilities. Growth remains underpinned by rising content per vehicle (premiumization, electrification, and increasing feature complexity), higher EV penetration, localization opportunities, deeper participation across existing customer platforms, and continued new model launches by OEMs. MSWIL also enjoys strong capital efficiency, with management maintaining a >40% RoCE objective and the company having historically delivered returns above this threshold. Given its competitive positioning, top-decile capital efficiency, and the benefits of EVs and other megatrends in autos, we believe MSWIL deserves the rich valuations it commands, and the correction offers a more attractive entry point. We reiterate our BUY rating with a TP of INR41 (based on 35x FY28E EPS).
Growth levers already in place
* MSWIL’s growth outlook is supported by a combination of near-term capacity ramp-up, deeper participation across existing OEM platforms, and structurally rising electrical and electronic content per vehicle.
* In the near term, the ramp-up of greenfield facilities at Navagam, Kharkhoda, and Pune, alongside the commencement of new customer programs, should remain important growth drivers. The three facilities generated INR10.4b of revenue in FY26, while management has indicated combined annualized revenue potential of around INR20–21b, subject to customer production schedules and volume ramp-up (1QFY27 revenue stood at INR4.5b). As of 1QFY27, utilization stood at ~80% at Kharkhoda, ~60% at Navagam, and ~50% at Pune, with the latter affected by customer volumes falling short of initial forecasts. This leaves meaningful headroom for revenue growth from capacity that has already been commissioned.
* Alongside capacity ramp-up, MSWIL continues to benefit from new model launches, premiumization, and deeper participation with existing OEM customers. The company’s long-standing relationships and technological capabilities have led customers to entrust it with more platforms, higher content, and greater responsibility, supporting growth ahead of underlying industry volumes
* The more structural growth driver, however, is the increasing electrical and electronic content per vehicle, which should enable wiring-harness demand to grow faster than underlying vehicle production over time. Premiumization, connected-car features, infotainment, electronically controlled safety systems, sensors, cameras, and ADAS are increasing the number and complexity of electrical and data connections within vehicles, thus increasing the content per vehicle over time.
* MSWIL is positioning itself for this transition through a powertrain-agnostic portfolio spanning ICE, EV, hybrid, and CNG platforms. Its capabilities extend across low- and high-voltage harnesses, while the company is also expanding into high-voltage, dual-voltage and integrated harness systems, and charging and power-electronics solutions.
* Backed by the ramp-up of greenfield facilities and incremental order wins from the model launch pipeline of OEMs over the next two years, we expect MSWIL to record a 17% revenue CAGR over FY26-28. For FY27, we currently factor in a 20% revenue growth (below the company’s guidance of over 24%)
Valuation and view
* MSWIL offers a pure play on the Indian automotive market (>95% of revenue from India). With over 40% market share, the company enjoys a market leadership position in the Indian wiring harness industry, with strong headroom for a sustainable increase in content, benefiting from mega trends witnessed in the automotive industry (premiumization, electrification, connected vehicles, etc.).
* The company enjoys healthy returns, led by superior efficiencies and economies of scale, healthy margins, higher asset turnover, and lower capex requirements. These parameters reflect high capital efficiencies and superior cash-flow generation.
* With copper prices now stabilizing, we do expect margins to gradually normalize in the coming quarters as the benefit of price pass-through will be reflected in financials. Overall, we estimate MSWIL to post a CAGR of 17%/13%/12% in revenue/EBITDA/PAT over FY26-28. The company’s premium valuations at 36x/28x FY27E/FY28E EPS seem justified, given its strong competitive positioning, top-decile capital efficiency, and benefits of EVs and other mega trends in autos. We reiterate our BUY rating with a TP of INR41 (based on 35x FY28E EPS
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
