Buy Motherson Wiring Ltd for the Target Rs. 55 by Motilal Oswal Financial Services Ltd
Earnings in line; start-up costs hurt margins
Continues to outperform industry growth
* MSWIL's revenue growth in 2QFY26 exceeded our estimate, though PAT of INR1.6b was in line with our estimate as margins continued to be under pressure due to the impact of start-up costs of the new greenfield plants.
* Considering a pickup in auto demand after GST rate cuts and the ramp-up of its new greenfield plants, we estimate MSWIL to post a CAGR of 15%/20%/22% in revenue/EBITDA/PAT over FY25-28E. The company’s premium valuations at 47.2x/34.4x FY26E/FY27E EPS seem justified given its strong competitive positioning, top-decile capital efficiency, and benefits of EVs and other mega-trends in autos. Reiterate our BUY rating with a TP of INR55 (based on 36x Sep’27E EPS).
Margins impacted by start-up costs of new plants
* Revenue grew 19% YoY to INR27.6b, aided by the commencement of new greenfield plants, which contributed to INR1.56b. Excl. these plants, revenue was up 11% YoY, ahead of PV industry growth of 4% YoY.
* Copper inflation was steep, rising 5% QoQ, with prices averaging INR929/kg in 2Q. INR depreciated to 87.3 against USD in 2Q.
* Due to the impact of start-up costs and copper inflation, reported EBITDA margin declined 60bp YoY to 10.1%. EBITDA margin (excl. greenfields) remained stable YoY at 12.7%
* Greenfield plants posted a combined EBITDA loss of INR460m in 2Q. The loss will start reducing in the coming quarters as these plants ramp up.
* Other income was lower than expected at INR8.1m in 2Q vs. INR47.5m YoY.
* As a result, PAT grew 9% YoY to INR1.6b (in line with our estimate). Adjusted for greenfield plans, PAT grew 11% YoY to INR2b.
* MSWIL remains net debt-free despite near-term margin pressures from the greenfield plants.
Highlights from the management commentary
* Greenfield projects reported revenue of INR1.9b and EBITDA losses of INR460m in 2Q.
* The majority of the greenfield units are still in the ramp-up phase. Utilization levels currently stand at around 36%.
* Out of the three greenfield projects, one has ramped up to the committed volumes, while the other two are still in the process of ramping up.
* Copper prices increased by 11% YoY and 5% QoQ. Rising raw material prices are managed by a lag of a quarter.
* EV share of revenue increased to 6.7% in 2QFY26. ? The capex guidance for FY26 stands at INR2.1b.
Valuation and view
* Considering a pickup in auto demand after GST rate cuts and the ramp-up of its new greenfield plants, we estimate MSWIL to post a CAGR of 15%/20%/22% in revenue/EBITDA/PAT over FY25-28E. Accordingly, RoCE is expected to improve to 48% in FY28E from 41.4% in FY25.
* The stock trades at 47.2x/34.4x FY26E/FY27E EPS. 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. Reiterate our BUY rating with a TP of INR55 (based on 36x Sep’27E 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
