Motherson Sumi Systems - Strong Show; Focus Shifts to Reducing Debt - ENAM Direct

Motherson Sumi Systems (MSS) reported strong Q2 performance with adj. PBT (ex forex gain) rising 62% YoY to Rs 1.8 bn. APAT was down 7% YoY at Rs 921 mn due to minority interest adjustment. SMP's adj. PBIDT margin at 3.7% declined 50 bps QoQ (due to lower QoQ sales). SMR's adj. PBIDT margin at 5% was flat YoY and QoQ.

With MSS already achieving its 2015 revenue target of USD 5 bn, management now intends to focus on FCF generation, debt reduction, and RoCE improvement. We upgrade our FY14E EPS by 8% to Rs 14 to factor in strong Q2. Maintain BUY with SOTP-based TP of Rs 180. We revise our valuation methodology to EV/EBIDTA (from PE), given the management focus on debt reduction.

Standalone - strong performance continues: MSS reported Q2 revenue growth of 22% YoY to Rs 9.6 bn, driven by 44% growth in exports. Adj EBIDTA margin was 15.1% (down 30 bps YoY).

SMR - utilization ramp up key to margin improvement: SMR posted 17% YoY revenue growth to Euro 229 mn (flat QoQ). However, adj. margin was flat QoQ/YoY at 5% due to lower utilization of assets. Utilization at new Hungary plant is ~32%.

SMP - in line performance: SMP reported adj. margin of 3.7% (down 50 bps QoQ) due to lower net sales (seasonality impact). However, higher minority interest adjustment (76%) impacted PAT.

Capex: In H1, total capex stood at Rs 5.6 bn. Capex in standalone business was ~Rs 1.6 bn. Total capex for FY13 is ~Rs 8 bn.

Source : Equity Bulls

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