Motherson Sumi Systems - Fundamental Call - Consortium

Results above estimates on account of strong standalone performance: Net sales within India on a consolidated basis grew by 27.8% YoY at Rs11.2bn, whereas exports increased by 87.4% YoY to Rs54.3bn. On a consolidated basis, top-line was up 73.5% to Rs66.6bn, while EBITDA margins improved by 90bps YoY at 7.6% on account of 280bps improvement in the standalone margins. As a result, the overall consolidated EBITDA doubled to Rs5.1bn in line with our estimate of Rs5.2bn. Adj. for the MTM forex loss of Rs639m, PAT grew by 20.0% YoY to Rs1.67bn.

Standalone operations PAT grows by 25.6% YoY at Rs1.2bn adjusted for forex loss: Net sales within India on a standalone basis grew by 27.3% YoY at Rs9.0bn, whereas, exports increased by 24.6% to Rs1.5bn. This led to a 27.1% YoY increase in standalone top-line to Rs10.6bn. EBITDA margins improved by 280bps YoY to 18.9%, with EBITDA reporting a growth of 49.8% YoY at Rs2.0bn. On account of lower other income and higher tax outgo, Adj. PAT for the quarter grew by 25.6% YoY to Rs1.2bn (Forex MTM loss of Rs83m).

SMR's top-line growth intact at 20.8%: Samvardhana Motherson Reflectec (SMR) reported a 20.8% YoY growth in top-line at Rs18.4bn and 17.4% YoY growth in Euro terms at Euro 262m. On account of higher utilisation at the new Hungarian plant (@50%), SMR's EBITDA margins improved by 210bps YoY to 7.0% (Q2FY13-5.0%) with a growth of 73.6% YoY. Adj. for forex MTM loss of Rs32.2m, PAT stood at Rs327m (Q2FY13: Rs216m). The second Hungary plant's utilisation has increased to 50% at the end of Q3FY13 as against 40% at the start of the quarter. We estimate an EBITDA margin of 7.0% at SMR with a 20.0% growth in top-line in FY14E.

Top-line growth at 23.8% excl. Peguform: Peguform (SMP) reported a top-line of Rs33.3bn (Euro 474m), with EBITDA margins at 4.0% for the quarter (Q2FY13: 3.7%). Consolidated top-line, excl. Peguform, grew by 23.8% YoY at Rs33.3bn. Adj. for the forex MTM gain of Rs573m, Peguform reported a PAT loss of ~Rs17m in our view.

SMP's profitability likely to gradually improve over next two years: According to the management, Peguform's 4.0% EBITDA level margin was purely operational and had no one-offs in it. In our view, Peguform could add 7-8% to the consolidated profit.

New orders of Euro 1.3bn each at SMR and SMP to improve visibility: MSSL has won orders to the tune of Euro 1.3bn ($1.6bn) for Peguform; this is a very positive development as Peguform's quarterly runrate is Euro 470m. At SMR, similar kind of order to the tune of Euro 1.35bn has been won. Both the above orders would be executed from FY15 onwards.

Improvement in sight: Going forward, in our view, sales as well as margins will improve with increased utilisation at SMR, improvement in volumes for MSIL (standalone business) and improvement in margins at Peguform.

Valuations attractive;Buy: We expect better times ahead for MSSL, with the execution of new order book at SMR and improvement in margins at SMP over the next one year. At the CMP, the stock is trading 13.8x FY14E and 9.7x FY15E earnings, which in our view, is attractive, given the 42.0% CAGR in earnings for FY12-FY15E. Hence, we recommend ‘BUY' call on the stock with a SOTP-based target price of Rs235.

Source : Equity Bulls

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