Buy Motherson Sumi Systems Good performance to continue; Anand Rathi

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Motherson Sumi Systems
Good performance to continue; Buy
Motherson Sumi Systems is expected to continue on its steady
growth path, boosted by robust domestic demand and new order
implementation at Samvardhana Motherson Reflectec in FY12
and subsequent operating leverage from FY13. We re-iterate our
Buy on the stock, with a target price of `221.

 Benefits of good domestic car growth. Motherson Sumi has
benefited from revved-up growth in domestic passenger cars.
Domestic car volumes have risen at a healthy ~31.3%, ytd FY11,
and are expected to register a 13% CAGR over FY11e-13e. With a
65% share, MSS dominates the market in passenger-car-wiring
harnesses. Further, as it is well-established with upcoming models
being launched in India, MSS would register higher-than-industry
growth.
 Steady at SMR. Samvardhana Motherson Reflectec, the rearviewmirror
business, has turned around faster than expected after its
acquisition by MSS. In ytd FY11, an appreciating rupee capped
revenue growth at SMR, but the outlook is robust on new order
implementation commencing in FY12 and subsequent operating
leverage from FY13.
 Valuation and risks. We have a Buy rating on MSS, with a target
of `221 (18x target PE, on par with its past six-year average). At
the current price, the stock trades at a PE of 15.1x FY12e EPS.
Risks: slowdown in European demand or delay in new model
launches there, currency risk, and the complicated company
structure.