Motherson Sumi Systems - Firing on all cylinders! - ICICI Securities

Motherson Sumi Systems' (MSS) Q3FY21 operating performance was an all-round beat across verticals as EBITDA margin came in at 10.5% (up 261bps YoY /14-qtr high). SMP reported highest ever margins (9.4%/up 451bps), while SMR/ India business also clocked in solid margins 13.2%(up 266bps)/18.4%(up 150bps) respectively. Management expects greenfield plants of SMP (became EBITDA breakeven) to witness further improvements in FY22, thus 3Q SMP improvement is more reflective of the operational improvement of mature plants. This raises the ceiling for further improvement in SMP's margins as greenfields reach trend margins in coming periods. Management indicated ~21% of unexecuted order book (EUR13.1bn) consists of pure-play EV models, this augurs well for SMRPBV as both content/profitability is likely to rise as EV's become more popular. We expect RoE/RoCE to reach ~25%/20% levels respectively in FY23. Maintain BUY.

- Key highlights of the quarter: Overall consolidated revenues stood at ~Rs171bn (up ~9% YoY) due to SMRPBV (up ~15% in EUR terms). The standalone business reported a revenue decline of ~31% at ~Rs11bn as margins were lower at 14.2% (down 78bps). SMP and SMR witnessed 451bps and 266bps expansion in reported margins at 13.2% and 9.4% respectively, while PKC reported 7bps decline at 9.4%. Strong cash flows aided debt reduction (net debt down by ~Rs13bn QoQ).

- Key takeaways from earnings call: a) Most plants are operating at >75% utilisation; b) SMRPBV has witnessed strong working capital improvement (down from 18 to 10 days) ; c) cost reductions continue on the greenfield plants and their benefits are likely to be visible from FY22 onwards; production schedule impact due to semiconductor shortages are not likely to persist for longer duration; d) PKC business is performing very well with strong growth expected in North America, India, Europe; and e) management indicated that as per the reorganisation plan the current entity is likely to become EPS accretive from FY21 (ahead of the earlier target of FY22).

- Maintain BUY: As growth recovers, improved cost efficiencies across SMP/PKC/India is likely to accelerate profitability improvement. Barring any major growth capital investment/M&A, we expect MSS to be 'net debt negative' in FY23E. We revise our earnings growth estimates by ~18% for both FY22E/23E as we factor-in the improving greenfield performance. The stock is currently available at attractive strong FCF yields (8%/14% in FY22E/FY23E respectively). We value MSS on SoTP basis and value its India business (ex-DWH/DWH) at 24x (earlier:23x) /25x respectively while valuing the international subsidiaries at 15x (earlier:14x) FY23E EPS. We maintain BUY with a revised target price of Rs253/share (earlier: Rs187).

Shares of MOTHERSON SUMI SYSTEMS LTD. was last trading in BSE at Rs.210.7 as compared to the previous close of Rs. 197.25. The total number of shares traded during the day was 8743416 in over 44419 trades.

The stock hit an intraday high of Rs. 221 and intraday low of 204.1. The net turnover during the day was Rs. 1863179591.

Source : Equity Bulls

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