Accumulate Motherson Sumi Systems - Strong operating performance:; Emkay

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Motherson Sumi Systems Ltd.

Strong operating performance, Retain ACCUMULATE

ACCUMULATE

CMP: Rs 186                                       Target Price: Rs 210

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n     MSSL delivers strong operating performance. Sales stood at Rs21.3bn (est. Rs 21.7bn), EBIDTA at Rs 2.2bn (est. Rs2.1bn) and APAT at Rs 870mn (est. of 812mn)

n     Adverse currency movement resulted in SMR reporting in line results due to higher translational losses. Avg exchange rate for 3QFY11 was 60.9 (Rs/Euro) vs 68.7 in 3QFY10

n     Demand outlook remains strong across geographies, increase in new business orders with SMR, expect benefits of cross leveraging to start from 2HFY12

n     Upgrade our FY12 EPS by 5.6% to Rs 13.7 due to better margins at SMR and standalone business, retain ACCUMULATE rating

SMR –in line performance, despite 12.9% adverse YoY currency swing,

SMR reported sales of Euro 185 mn (+13.2% YoY). However, higher than expected

adverse currency (Rs/Euro of 60.9 in 3QFY11 vs Rs/Euro of 68.7 in 3QFY10) resulted

in net sales at Rs 11.2bn (+0.2% YoY), in line with est. Our est. were based on Rs/Euro

rate of 64. This has resulted in translational losses higher than est. Also, 2010 will be

driven by sales of older/existing models. Participation in new programs will commence

from 2011. We expect strong traction in 2011 on profitability as well as sales once share

of new model increases. Also, FY12 to witness some benefited of cross leveraging as

the legacy contracts (on the cost) side starts getting exhausted.

Standalone performance – strong show continues

Standalone performance was above est. Net Sales, Adj PBIDT and Adj PAT at Rs 7.8bn,

1.4bn and Rs 759mn were 15%, 30% and 23% above est. We attribute this to strong

volume growth and higher content per car.

Other Subsidiaries (ex SMR & Standalone) – sub par performance

Topline for other subsidiaries at Rs 1.8bn (derived) was below our est. The sharp jump in

minority interest is due to share in extraordinary income (Rs 250mn) representing

compensation received from one of the customers on cancellation of business with

Motherson Sumi Wiring Systems ltd (FZE) in which MSSL has 51% stake. Post this MSSL

has acquired the 49% stake in the company and now it is 100% subsidiary.

Valuation & view

We have upgraded our FY11E and FY12E earnings estimates by 5% and 5.6% respectively

due to strong operating performance. We upgraded our TP by 5% to Rs 210 per share,

valuing the company at PER of 15.3 our FY12 estimates. We retain our ACCUMULATE

rating