Buy Motherson Wiring Ltd for the Target Rs 48 by Motilal Oswal Financial Services Ltd
Revenue outperformance offset by margin pressure
* Motherson Wiring’s (MSUMI) 1Q PAT came in line with our estimate at INR1.5b (+1.6% YoY). However, EBITDA margin remained under pressure and came in at 7.6% (below our estimate of 8.3%) due to a 7% QoQ surge in copper prices.
* On account of a weaker than expected performance in 1Q, we have lowered our EPS estimates by 7%/1% for FY27/FY28. With copper prices now stabilizing, we expect margins to gradually normalize in coming quarters as the benefit of price pass-through will be reflected in financials. Overall, we estimate MSUMI to post a CAGR of 16%/20%/21% in revenue/EBITDA/PAT over FY26-28E. The company’s premium valuations at 38x/29x 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 INR48 (based on 35x FY28E EPS).
Margins under pressure
* 1QFY27 revenues grew ~37% YoY to INR34b (ahead of estimates), aided by the successful ramp-up of new customer programs and the pass-through of high copper prices. EV revenue share has now increased to 8.5% in 1Q.
* Copper inflation was steep, with prices rising ~7% QoQ (+53% YoY) and averaging INR1348/kg in 1Q.
* Due to high copper prices, along with significant minimum wage revisions in multiple states, EBITDA margin missed our estimates, coming in at 7.6% (estimated 8.3%). EBITDA grew ~6% YoY to INR2.6b, broadly in line with our estimate of INR2.7b.
* Other income was higher than expected at INR54m (vs. estimated INR12m).
* PAT broadly came in line with our estimate at INR1.4b, growing 1.6% YoY (estimated INR1.5b).
* MSUMI remains net debt-free despite near-term margin pressures from the greenfield plants.
Valuation and view
On account of a weaker-than-expected performance in 1Q, we have lowered our EPS estimates by 7%/1% for FY27/FY28. With copper prices now stabilizing, we do expect margins to gradually normalize in the coming quarters as the benefit of price passthrough will be reflected in financials. Overall, we estimate MSUMI to post a CAGR of 16%/20%/21% in revenue/EBITDA/PAT over FY26-28E. The company’s premium valuations at 38x/29x 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 INR48 (based on 35x FY28E EPS).
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