Buy Motherson Wiring Ltd for the Target Rs.46 by Motilal Oswal Financial Services Ltd
Start-up costs of new plants hurt profitability
Continues to outperform industry growth
* MSUMI's 1QFY26 PAT at INR1.43b was below our estimate of INR1.6b, largely due to the impact of start-up costs of new greenfields, even as revenue growth was ahead of estimates.
* We believe MSUMI deserves rich valuations, given its strong competitive positioning, top-decile capital efficiency, and benefits of EVs and other megatrends in Autos. The stock trades at 39.5x/29.8x FY26E/FY27E EPS. Reiterate our BUY rating with a TP of INR46 (based on 34x Jun’27E EPS).
Margins impacted by start-up costs of new plants
* Revenue grew 14% YoY to INR24.9b in 1Q on the back of the commencement of two new greenfields, which contributed INR1.56b to revenues. Excl. these greenfields, revenue was up 7% YoY, ahead of PV industry growth of 3% YoY.
* Copper inflation remained moderate, with prices averaging INR883/kg in 1Q. Currency remained broadly stable, with INR/USD at 85.59.
* Reported EBITDA margin declined 110bp YoY to 9.8% (Vs estimate of 10.9%), primarily due to start-up costs of greenfields. EBITDA margin (excl. greenfields) remained stable YoY at 11.8%.
* Its greenfields reported a combined EBITDA loss of INR3.1b in 1Q.
* Other income was also lower than expected at INR8.6m in 1QFY26 vs. INR49.8m in 1QFY25.
* As a result, PAT declined 4% YoY to INR1.43b (below our estimate of INR1.6b). Adjusted for greenfields, PAT grew 4% YoY to INR1.7b.
* MSUMI remains net debt free.
Highlights from the management commentary
* Revenue grew 14% YoY to INR24.9b on the back of the commencement of two new greenfields. Excl. these greenfields, revenue was up 7% YoY, ahead of PV industry growth of 3% YoY, reflecting strong content growth and presence in new model launches. Both PV and 2W segments saw weak demand in 1Q. However, management indicated that MUSMI has presence in several new upcoming launches even in the 2W and PV segments.
* Revenue contribution from greenfields stood at INR1.56b in 1Q. Of the three greenfields, the Maharashtra and Gujarat plants have commenced operations, while Haryana is expected to commence from 2Q onwards. The ramp-up of both Gujarat and Maharashtra greenfields has been delayed due to delays at customer end amid the shortage of supplies of rare earth magnets due to a delay in approvals from China.
* All three plants together are likely to have employee strength of ~7k at peak production.
* The jump in staff costs in 1Q was due to the addition of employees at these greenfields.
* The share of EVs in revenue increased to 5.4% in 1QFY26. In PVs, content increase in EVs is 1.5-1.7x higher than in ICE, as per management.
* Capex guidance for FY26 stands at INR2b.
Valuation and view
* We believe MSUMI deserves rich valuations, given its strong competitive positioning, top-decile capital efficiency, and benefits of EVs and other megatrends in autos. The stock trades at 39.5x/29.8x FY26E/FY27E EPS. Reiterate our BUY rating with a TP of INR46 (based on 34x June-27E EPS).
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