Sell Motherson Sumi Wiring India Ltd.for Target Rs. 62 by Elara Capital
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
Revenue growth QoQ underperforms PV growth
EBITDA margin expansion led by improving mix
Motherson Sumi Wiring India’s (MSUMI IN) Q4 revenue rose 19% YoY and 5.6% QoQ to INR 22.3bn, ahead of our estimates. QoQ revenue growth at 5% underperformed production growth for the PV industry at 18%. Q4 EBITDA surged 34% YoY and 11% QoQ to INR 2.9bn, with margin at 13% (up 147bps YoY/66bps QoQ), on better product mix and improving operating leverage, with operations stabilizing at new facilities. The RMC-sales ratio was down 41bps QoQ to 65.1%. Employee expense-to-sales ratio was down 66bps QoQ to 15.4%, while other expense-to-sales ratio rose 41bps QoQ to 6.4%. Adjusted PAT accelerated 38% YoY/14% QoQ to INR 1.9bn.
Higher capex in FY25
MSUMI has guided for an INR 2bn capex in FY25 as against INR 1.3bn in FY24. MSUMI will commission two new facilities in Q1FY25, to cater to both ICE and EV customers. These facilities may lead to 10-15% increase in current capacity once fully ramped up (expect start of operations in Q1FY25, while full ramp-up may be Q3FY25 onwards). The management expects sustained revenue growth going ahead, mainly led by premiumization trend leading to an increase in wiring content/vehicle. Also, MSUMI expects expansion plans by its key customers (Maruti and Tata) to bode well for its revenue growth.
Valuations: Downgrade to Sell; TP unchanged at INR 62
While margin trajectory improved with normalization of OEMs’ production schedules, FY24 margin at 12.2% was still below FY22 level of 13% despite FY24 revenues being ~50% higher than FY22 revenues. Increasing content per vehicle in EVs may benefit MSUMI in the initial years, but risks associated with technology/platform changes remain, as OEMs globally try to reduce wiring harness content in a vehicle to trim the overall vehicle weight. Also, MSUMI is now a single product/geography play, restricting any potential for a rerating above 30x P/E, despite industry-leading return ratios. We largely keep our FY25-26E EPS unchanged. We downgrade to Sell (from Reduce earlier) with TP unchanged at INR 62, on 30x (unchanged) June 26E P/E.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
