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Motherson Sumi: Performance on course…
Motherson Sumi (MSL) reported positive numbers for Q3FY11 that were
in line with our estimates as net sales grew to | 2083.1 crore (I-direct
estimate: | 2176.2 crore), up 16.9% YoY and 8.7% QoQ. This was driven
by a strong 15.1% QoQ jump in standalone revenues whose
contribution to total revenues has risen 170 bps QoQ to 35.8%. MSL
had to deal with unfavourable euro movement leading to translation
related declines. MSL has managed to improve margins in the wake of
rising input costs as a large global presence provided sourcing
flexibility, higher product categories led to reduced dependency on
specific RM along with implementation of various costs rationalisations
exercises. EBIDTA margins improved 180 bps sequentially at 11.8%.
However, PAT margins have been further boosted due to lower tax
rates owing to tax adjustments/benefits for the foreign subsidiaries.
Highlights of the quarter
Q3FY11 has seen a strong performance on the standalone entity along
with improvements in performance of the subsidiaries inclusive of SMR.
The standalone entity has seen resurgence in exports (up 37.8% YoY)
along with robust domestic automotive growth. Among subsidiaries, the
major SMR has seen euro revenues rise ~13% YoY. However, due to
unfavourable euro translation rates, rupee revenue seems flat YoY. Cost
rationalisation measures undertaken across MSL, have seen the
subsidiaries turning more profitable with ex-SMR margins up ~25%and
SMR ~6%. With the completion of the earlier long-term sourcing
contracts (from Q1FY12), SMR is expected to improve on the margins
front. The management is confident of global automotive growth with the
growth in order book pertaining to new car launches globally.
Valuation
MSL is one of the leading ancillary suppliers globally and has been
continuously improving its content per car and remains positive on strong
SMR margin growth. At the CMP of | 184, the stock is trading at 20.4x
FY11E and 15.3x FY12E consolidated EPS. Using SOTP, the stake in SMR
is valued at | 39/share (0.6x price /sales) while the remaining business is
valued at | 161/share (16x FY12E EPS). Our target price of | 200 implies
an upside potential of 9%. We maintain our ADD rating on the stock.
Outlook and valuation
Outlook
The strong resurgence in global automotive growth led by the US has
seen MSL gain newer order towards new potential vehicle launches. The
Euro region has been sluggish in CY10. However, the volume traction is
expected to be strong, going ahead. On the domestic front, MSL
continues to remain the leader in the wiring harness business and MSL
has started to increase its content per car (~3.1%) with the introduction
of HVACs for PVs, tractors and trucks. MSL is the sole supplier towards
various newer domestic models like Etios and Micra. The management
has a positive outlook towards a growth scenario and has undertaken
various projects to establish new facilities in Hungary, Thailand. MSL
would be undertaking a combined capex of | 1,000 crore in FY11-12E.
Valuation
MSL is one of the leading ancillary suppliers globally and has been
continuously improving its content per car (3.1%) and remains positive on
strong SMR margin growth. On the costs front, MSL continues to
implement various costs management measures and would see
incremental benefits in the coming quarters. At the CMP of | 184, the
stock is trading at 20.4x FY11E and 15.3x FY12E consolidated EPS. Using
SOTP, the stake in SMR is valued at | 39/share (0.6x price /sales) while
the remaining business is valued at | 161/share (16x FY12E EPS). Our
target price of | 200 implies an upside potential of 9%. We maintain our
ADD rating on the stock.
Exhibit: Valuation
SMR
Target FY12E P/S multiple 0.6
Valuation (| crore) 3244
MSSL stake (%) 46.6
Contribution to MSSL (| crore) 1510
Per share contribution (|) 39
Remaining business (Ex. SMR)
Target FY12E P/E multiple 16
FY12E EPS (|) 10.1
Per share value (|) 161
SOTP Price (|) 200
Source: Company annual report, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Motherson Sumi: Performance on course…
Motherson Sumi (MSL) reported positive numbers for Q3FY11 that were
in line with our estimates as net sales grew to | 2083.1 crore (I-direct
estimate: | 2176.2 crore), up 16.9% YoY and 8.7% QoQ. This was driven
by a strong 15.1% QoQ jump in standalone revenues whose
contribution to total revenues has risen 170 bps QoQ to 35.8%. MSL
had to deal with unfavourable euro movement leading to translation
related declines. MSL has managed to improve margins in the wake of
rising input costs as a large global presence provided sourcing
flexibility, higher product categories led to reduced dependency on
specific RM along with implementation of various costs rationalisations
exercises. EBIDTA margins improved 180 bps sequentially at 11.8%.
However, PAT margins have been further boosted due to lower tax
rates owing to tax adjustments/benefits for the foreign subsidiaries.
Highlights of the quarter
Q3FY11 has seen a strong performance on the standalone entity along
with improvements in performance of the subsidiaries inclusive of SMR.
The standalone entity has seen resurgence in exports (up 37.8% YoY)
along with robust domestic automotive growth. Among subsidiaries, the
major SMR has seen euro revenues rise ~13% YoY. However, due to
unfavourable euro translation rates, rupee revenue seems flat YoY. Cost
rationalisation measures undertaken across MSL, have seen the
subsidiaries turning more profitable with ex-SMR margins up ~25%and
SMR ~6%. With the completion of the earlier long-term sourcing
contracts (from Q1FY12), SMR is expected to improve on the margins
front. The management is confident of global automotive growth with the
growth in order book pertaining to new car launches globally.
Valuation
MSL is one of the leading ancillary suppliers globally and has been
continuously improving its content per car and remains positive on strong
SMR margin growth. At the CMP of | 184, the stock is trading at 20.4x
FY11E and 15.3x FY12E consolidated EPS. Using SOTP, the stake in SMR
is valued at | 39/share (0.6x price /sales) while the remaining business is
valued at | 161/share (16x FY12E EPS). Our target price of | 200 implies
an upside potential of 9%. We maintain our ADD rating on the stock.
Outlook and valuation
Outlook
The strong resurgence in global automotive growth led by the US has
seen MSL gain newer order towards new potential vehicle launches. The
Euro region has been sluggish in CY10. However, the volume traction is
expected to be strong, going ahead. On the domestic front, MSL
continues to remain the leader in the wiring harness business and MSL
has started to increase its content per car (~3.1%) with the introduction
of HVACs for PVs, tractors and trucks. MSL is the sole supplier towards
various newer domestic models like Etios and Micra. The management
has a positive outlook towards a growth scenario and has undertaken
various projects to establish new facilities in Hungary, Thailand. MSL
would be undertaking a combined capex of | 1,000 crore in FY11-12E.
Valuation
MSL is one of the leading ancillary suppliers globally and has been
continuously improving its content per car (3.1%) and remains positive on
strong SMR margin growth. On the costs front, MSL continues to
implement various costs management measures and would see
incremental benefits in the coming quarters. At the CMP of | 184, the
stock is trading at 20.4x FY11E and 15.3x FY12E consolidated EPS. Using
SOTP, the stake in SMR is valued at | 39/share (0.6x price /sales) while
the remaining business is valued at | 161/share (16x FY12E EPS). Our
target price of | 200 implies an upside potential of 9%. We maintain our
ADD rating on the stock.
Exhibit: Valuation
SMR
Target FY12E P/S multiple 0.6
Valuation (| crore) 3244
MSSL stake (%) 46.6
Contribution to MSSL (| crore) 1510
Per share contribution (|) 39
Remaining business (Ex. SMR)
Target FY12E P/E multiple 16
FY12E EPS (|) 10.1
Per share value (|) 161
SOTP Price (|) 200
Source: Company annual report, ICICIdirect.com Research
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