Just too big to ignore!!! • MSSL :: ICICI Securities, PDF link

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Annual Report Analysis - Motherson Sumi :: Edelweiss PDF report link

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Motherson Sumi Systems Good performance to continue; Buy :: Anand Rathi

Motherson Sumi Systems
Good performance to continue; Buy
Key takeaways
Domestic performance to be decent. While car sales in India have been
lower yoy, Motherson Sumi Systems is in a position to ably combat this
deceleration through supply for new models, consolidation of vendors by
OEMs and the lower base for Maruti Suzuki. Ytd performance at its India
operations has been good, as exports have been ramped up and plants were
commissioned to meet further demand. We expect standalone revenue to
grow11.3% yoy, to `11.8bn, with adj. profit growth at 12.7% yoy, to `1.4bn.
Steady performance by SMR, SMP. We expect the Europe-centric
companies, SMR and SMP, to maintain trajectories of steadily improving
performances. We estimate SMP’s 3QFY14 EBITDA margin to be 5.8% (up
180bps yoy, lower 20bps qoq) and SMR’s at 8.8% (up 180bps yoy, lower
30bps qoq). Ahead, a recovery in European automotive production may
strongly benefit both these companies.
Consolidated results to be impressive. Consolidated revenues could grow
11.4% yoy, to `74.2bn. We expect 9.5% consolidated EBITDA margin (up
190bps yoy). We expect adjusted profit to grow 54.8% yoy, to `2.2bn (up
0.8% qoq).
Our take. The company is expected to continue marching ahead, aided by
product launches and customer additions, greater synergies from integrating
its European acquisitions and the turnaround of its unprofitable plants.
Launches by OEMs and customer additions would further boost growth. We
retain a Buy, with a target of `208. At our target, the stock would trade at 16x
Mar’15e; at the ruling price, it trades at 14.7x FY15e.
Risks. Sustained slowdown in demand, delay in launches of new models,
currency volatility.

Bharat Electronics, Motherson Sumi, Apollo Tyres: reports by Kotak Securities

Bharat Electronics: Execution, margins and cash utilization remain unclear;
retain REDUCE

Motherson Sumi Systems: Peguform turning around faster than expected

Apollo Tyres: Why are Apollo's reported debtor days lower than peers?

Motherson Sumi Systems :: Prabhudas Lilladher MID-CAP top pick

Diversified business model: With over 120 manufacturing locations spread
across 25 countries, Motherson Sumi Systems (MSSL) has established a strong
presence globally across various product lines of the automotive component
industry such as wiring harnesses, polymer processing, rear-view vision
systems and integrated modules. With the acquisition of Peguform, the
management is confident of reaching revenue of US$5bn in 2015 as against
US$2.9bn currently.
Revenue potential of €150m from SMR’s second plant at Hungary: SMR has
shown consistent improvement in performance and has recorded the highest
ever annual sales of €860m, registering a growth in sales of 14%. SMR has
started commercial production and supplies from its second plant in Hungary
to support German OEMs. The plant has an installed capacity of 6m mirrors
per annum and sale potential of €150m per annum. SMR is setting up new
facilities in Brazil, Thailand, China and Pune (India) for mirror manufacturing
and vertical integration, where production will commence in the coming year.
Samvardhana Motherson Peguform’s (SMP's) top-line last year was €1.67bn:
With annual sales of €1.67bn, SMP is now the largest subsidiary of MSSL on a
full-year basis. Peguform’s capex was at €32m for five months (Nov’11 to
Mar’12). Debt on the books of Peguform is at €392m i.e. Rs27bn including
€193m debt taken for acquisition by MSSL and Samvardhana Motherson
Finance as of March 31, 2012. We have built in revenues at €2.0bn and
EBITDA margin of 4.0% for Peguform in FY13E.
SMR’s and SMP’s new orders of €1.3bn each to improve visibility: MSSL has
won orders to the tune of €1.3bn (US$1.6bn) for Peguform; this is a very
positive development as Peguform’s quarterly run-rate is €470m. At SMR,
similar kind of order to the tune of €1.35bn has been won. Both the above
orders would be executed from FY15 onwards.
Valuations attractive; Maintain ‘Accumulate’: We expect better times ahead
for MSSL, with the execution of new order book at SMR and improvement in
margins at Peguform over the next one year. At the CMP, the stock is trading
at 12.6x FY13E and 10.9x FY14E earnings, which in our view, is attractive,
given the 35.0% CAGR in earnings for FY12-FY14E.

Result Update: , Eicher Motors Ltd, Sun Pharma, Motherson Sumi Systems Ltd, State Bank of India :: Emkay

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Click in link to read report: Result Update

Eicher Motors Ltd Reco: HOLD CMP: Rs 1,705 Target Price: Rs 1,915 Mixed bag, Downgrade to HOLD ·      EBIDTA at 1.5bn (4% below est). APAT at Rs 854mn (in line). CV business surprised positively, while two wheeler performance was below est. ·      Waiting list for two wheelers continues despite capacity increase. Strong CV performance will be driven by expansion in HD ·      Fine tune CY12 est. by -2% to Rs 137.8. Introduce CY13 with EPS of Rs 161. See downside risk to vol. est. due to macro environment/capacity constraints ·      Downgrade to HOLD with a TP of Rs 1,915 (current business value – Rs 1,762, NPV of engine business – Rs 153). Key triggers – faster capacity addition of two wheelers

Sun Pharma Reco: ACCUMULATE CMP: Rs 552 Target Price: Rs 586 Strong Performance - Maintain Accumulate ·      Sun Pharma’s Q3FY12 results - Revenues at Rs21bn (up 34% YoY), EBITDA at Rs9.6bn (up 119% YoY) and RPAT at Rs6.6bn (up 91% YoY) ·      Strong performance was led by 63% growth in US which was driven by ramp-up in market share of recently launched products, increase in selling prices of select products in Taro and INR dep. Domestic biz grew 17% ·      Going forward in FY13E, growth will be driven by Para-IV launch of Lexapro, Plavix, Eloxatin and Stalevo in US and continued momentum in domestic biz ·      With strong traction from US market and a stable domestic business – we maintain Accumulate rating with a revised target price of Rs586 at 21x FY13E EPS of Rs28

Motherson Sumi Systems Ltd Reco: ACCUMULATE CMP: Rs 174 Target Price: Rs 210 In line, Retain ACCUMULATE ·      EBIDTA at Rs 2.6bn was in line (est. Rs 2.5bn). APAT at Rs 1.2bn was above est. of Rs 885mn due to lower tax rate. SMR reports 150bps QoQ margins expansion with higher utilization ·      Peguform reports Sales/Adj. EBITDA/APAT of Rs11.5bn/Rs 43mn/ Rs -156mn for 38 days. Peguform to be EPS accretive but not assigning value due to limited information ·      Concerns with Debt overdone. Net Debt (ex Peguform) is Rs 16bn (marginally up QoQ).  Of the total gross debt of Rs 29bn of Peguform, debt attributable to MSSL is only Rs 11bn ·      Retain ACCUMULATE with a TP of Rs 210.  SMR margins to further improve with increase in utilization. Major benefit visible from 2QFY13

State Bank of India Reco: HOLD CMP: Rs 2,129 Target Price: Rs 1,950 Slippages remain higher; capital infusion inadequate ·      SBI Q3FY12 – NII at Rs114bn ahead of estimates aided by higher loan growth and strong NIM at 4.1%. However, with lower other inc, PAT at Rs32.6bn came in line with our est ·      Asset quality continues to disappoint with gross slippages at Rs81bn (3.6% ann). Further, despite equity infusion, Net NPL / networth would stand at high 20%+ for FY12 ·      Loan growth at 7% qoq came in as a surprise. With 3% qoq growth in deposits, LDR inched 330bps qoq to 85%. Mgmt guided for 16% yoy loan growth for FY12 ·      Capital infusion + plough back of PAT would raise tier I CAR to 9%.  Also, with lower accretion in net slippages, pressure on asset quality to ease. Upgrade to Hold with PT of 1,950

Motherson Sumi Systems:: 2QFY2012 Result Update:: Angel Broking,

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For 2QFY2012, Motherson Sumi Systems’ (MSS) consolidated net profit was
significantly below our as well consensus estimates, despite better-than-expected
top-line and operating performance. Adjusted EBITDA margin at Samvardhana
Motherson Reflectec (SMR) witnessed a 289bp yoy contraction due to lower
utilization levels at the new plants in Hungary and Brazil. Further, MTM loss of
`74cr primarily on foreign currency loans and higher interest expense severely
impacted the company’s profitability. We have revised our FY2012 earnings
estimates downwards to factor in EBITDA margin pressures due to lower utilization
levels at the new plants. However, we believe operating leverage benefits due to
pick-up in order execution will enable MSS to restore its margin in FY2013.
We maintain our Accumulate view on the stock.
Lower utilization at new plants and notional forex loss affect overall performance:
For 2QFY2012, MSS posted strong 19.5% yoy (1.7% qoq) growth in top-line to
`2,339cr, led by a 13.4% (2.5% qoq) and 23.6% yoy (flat qoq) jump in domestic
and overseas sales, respectively. Overseas performance was boosted by strong
sales momentum at SMR, which grew by 21.6% yoy (down 2.2% qoq) in INR
terms. Adjusted EBITDA margin fell by 110bp yoy to 8.7%, largely due to a sharp
drop in operating margin at SMR. EBITDA margin at SMR fell by 289bp yoy to
3.3% due to unutilized capacities at the new plants in Hungary and Brazil. Net
profit fell sharply by 71.8% yoy (62.8% qoq) to `24cr, led by notional loss of
`61.4cr on foreign currency loans and a significant increase in interest cost.
Outlook and valuation: We believe execution of orders at SMR will help MSS
deliver volume and revenue growth going ahead. Further, ramp-up in new
capacities will aid margin expansion in FY2013. We expect MSS to deliver a
~15% and ~10% CAGR in its top line and bottom line, respectively, over
FY2011-13E. At `177, MSS is trading at 14.7x its FY2013E earnings. We
maintain our Accumulate rating on the stock with a revised target price of `193.

Motherson Sumi Systems Ltd. In a gestation phase, Retain ACCUMULATE ::Emkay

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Motherson Sumi Systems Ltd.

In a gestation phase, Retain ACCUMULATE

ACCUMULATE

CMP: Rs177                                        Target Price: Rs210

---

n     Results abv. est. with Sales/EBITDA/APAT at Rs 23bn/ 2bn/ 986mn vs est. of Rs 22.7/1.9bn/806mn. However, SMR disappoints with adjusted margins at 3.3%

n     SMR margins to remain subdued as new Hungary plant is in gestation phase (utilization at <5%). Low utilization level to continue in H2FY12

n     Expect margin uptick with commencement of ~Euro 800mn order in FY13. Lower our FY12/13 EPS by 11%/1% to Rs 10.4/ Rs 15.5

n     Retain ACCUMULATE but lower our target multiple to 13.5x PER to factor in lower asset utilization and rising macro headwinds for demand

Buy Motherson Sumi ; Target :Rs 196 ::ICICI Securities

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F o r e x   p r o v i s i o n s   h i t   p r o f i t a b i l i t y …
Motherson Sumi (MSL) reported its  Q2FY12 results, which were below
our estimates. The consolidated topline came in line with our estimates at
| 2290.3 crore (I-direct estimate: | 2284.3 crore) reflecting a 19.5% YoY
growth. On a subsidiary level, Samvardhana Motherson Reflectec (SMR)
sustained its robust business performance with sales growth of ~22%
YoY at ~| 1265 crore. The adjusted  EBITDA  margin  came  in  at  8.9%,
higher than our estimate of 8.6%,  driven by an improved standalone
operational performance (up 270 bps  QoQ) at 15.6%. The raw material
cost as a proportion of net sales declined ~60 bps QoQ even as copper
prices remained firm (up ~27 bps QoQ). The reported PAT (post concern)
declined 72% YoY to | 24.2 crore due  to the impact of | 74.3 crore for
unrealised forex impact on loans and certain interest accrued on loans.
The adjusted PAT is, thus, at | 98.6 crore, which is above our estimate.
Highlights of the quarter
MSL posted a topline growth on standalone sales at | 774.5 crore (up
18.6% YoY) driven by rising content per car (~3.0%). SMR had strong
sales growth at ~22% YoY, which could have been bettered if not for
labour problems faced at Maruti. The consolidated EBITDA margins were
higher 64 bps sequentially at 8.9% on account of a robust operational
performance on a standalone basis. However, volatility in the rupee and
euro impacted profitability. The reported PAT (post concern) declined
72% YoY to | 24.2 crore due to total provision of | 61.4 crore for
unrealised forex loss on loans not due till FY13-14E. The profitability of
SMR was also hampered by slow ramp up in plants of Hungary and Brazil.
V a l u a t i o n
We have factored in lower capacity utilisation at new plants, slowdown in
automotive demand and accordingly pruned our estimates. However, we
believe MSL, a leading automotive modules and component supplier, is
currently trading at attractive valuations. At the CMP of | 177, the stock is
trading at 20.8x FY12E and 13.0x FY13E consolidated EPS. We have
valued the stock on an SOTP basis. The stake in SMR is valued at |
52/share while the remaining business is valued at | 143/share. We have a
BUY rating on MSL with a target price of | 196.

Motherson Sumi : Theme -Winter Picks :: Anand Rathi

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Motherson Sumi Target 203
Motherson Sumi Systems Limited (MSSL) is the flagship company of the Samvardhana Motherson Group (SMG). It was
incorporated in 1986 as a JV between Sumitomo Wiring Systems (SWS), Sojitz Corporation (both of Japan) and SMG
(promoted by the Sehgal family). Currently, it is managed by Mr V. C. Sehgal (first generation promoter) and SWS, along
with a strong management team of professionals.
It has a well diversified product portfolio with presence in wiring harness, polymer products, rear view mirrors and
rubber/metal components. It is a preferred supplier to almost all the OEMs in India for wiring harness and rear view mirrors. It
is one of the largest players in polymer products for the domestic automotive market.
MSSL meets ~65% and ~48% of the domestic passenger vehicle demand for wiring harnesses and rearview mirrors. It
meets ~25% of the global passenger vehicle demand for rear view mirrors. Being a supplier of choice, it has adequate pricing
power (similar to Bharat Forge/Bosch) to protect its profitability.
MSSL's busniess model has seamlessly grown from single product, single location and select customers to diversified
products , multi locations (presence in 20 countries) and multiple customers (largest customer accounts for ~17% of the
revenue).

Motherson Sumi Systems SMFL files draft IPO document:: UBS

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UBS Investment Research
Motherson Sumi Systems
SMFL files draft IPO document
�� Event: SMFL files draft IPO prospectus with SEBI
Samvardhana Motherson Finance Ltd (SMFL) has filed a draft red herring
prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for an
IPO aggregating Rs17.5bn (new share issuance of Rs14.13 bn and Rs3.4bn stake
sale by promoter group company). SMFL has a 36.34% stake in Motherson Sumi
Systems (MSSL), 49% in Samvardhana Motherson Reflectec (SMR), and is
present in other businesses.
�� Impact: proposed capital raising in SMFL could support capex, lower debt
MSSL, which has businesses partly similar to SMFL, is currently trading at a
trailing PE of 17.3x FY11. SMFL consolidated restated net profit was Rs1.4bn in
2011, as per the DRHP. Capital raising in SMFL could support capex and lower
debt for its subsidiaries SMR and Peguform (acquisition under process). Group
structure continues to be complex due to cross-holdings and could impact investor
sentiment, in our view.
�� Action: good management track record, SMR/Peguform scale-up
We maintain our Buy rating with a price target of Rs280. Our positive stance is
premised on management track record, historical capital discipline, high return
ratios, and scale-up potential of SMR and Peguform. The MSSL stock is trading at
an FY12/13E PE of 14.3x/11.0x. Key risks are a global recession, Europe macro
risks, and the outcome of any proposed group capital-raising activity, which could
impact investor sentiment on the stock.
�� Valuation: maintain Buy rating with Rs280 price target
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a 12.0% WACC

See full list -click link below:

UBS Mid-Caps Strategy - What to Buy? �� Oct 2011 Update

UBS:: Motherson Sumi -SMFL files draft IPO document

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UBS Investment Research
Motherson Sumi Systems
S MFL files draft IPO document
􀂄 Event: SMFL files draft IPO prospectus with SEBI
Samvardhana Motherson Finance Ltd (SMFL) has filed a draft red herring
prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for an
IPO aggregating Rs17.5bn (new share issuance of Rs14.13 bn and Rs3.4bn stake
sale by promoter group company). SMFL has a 36.34% stake in Motherson Sumi
Systems (MSSL), 49% in Samvardhana Motherson Reflectec (SMR), and is
present in other businesses (see next page).
􀂄 Impact: proposed capital raising in SMFL could support capex, lower debt
MSSL, which has businesses partly similar to SMFL, is currently trading at a
trailing PE of 17.3x FY11. SMFL consolidated restated net profit was Rs1.4bn in
2011, as per the DRHP. Capital raising in SMFL could support capex and lower
debt for its subsidiaries SMR and Peguform (acquisition under process). Group
structure continues to be complex due to cross-holdings and could impact investor
sentiment, in our view.
􀂄 Action: good management track record, SMR/Peguform scale-up
We maintain our Buy rating with a price target of Rs280. Our positive stance is
premised on management track record, historical capital discipline, high return
ratios, and scale-up potential of SMR and Peguform. The MSSL stock is trading at
a FY12/13E PE of 14.3x/11.0x. Key risks are a global recession, Europe macro
risks, and the outcome of any proposed group capital-raising activity, which could
impact investor sentiment on the stock.
􀂄 Valuation: maintain Buy rating with Rs280 price target
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a 12.0% WACC

Motherson Sumi : Focus shifts to Peguform :Emkay

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We were joined by Mr. Laksh Vaman Sehgal - Director-MSSL & CEO-SMR
and Mr. Pankaj K. Mittal - COO, who shared their outlook on the industry
and company.
Key highlights
n Peguform to witness synergistic benefits in the next 6 -12 months. Value creation will
be driven by complementary product profile, client profile, cross leveraging across
components to provide a bouquet to clients
n There is scope for margins improvement at Peguform, given the complementary press
capacity. Peguform buys out (~65%) lower tonnage component sub assemblies while
manufacturing higher tonnage components. MSSL produces lower tonnage
components and thus, there can be backward integration to some extent.
n Consolidated MSSL's exposure to single client is ~16% of total revenues. Disparity
exists as Peguform's key client Volkswagen group constitutes ~75% of its turnover.
MSSL aims to lower this to sub 40% going ahead, by cross leveraging the diverse
client profile of MSSL and SMR.
n Peguform caters largely to Europe (~50%), China, Mexico and Brazil. MSSL targets to
increase presence in other geographies (especially Asia) and cater to other international
manufacturers.
n Synergy also exists in terms of land, plants and assembly line sharing between SMR
and Peguform. Incremental capex requirements for meeting complex client
requirements are low.
n MSSL has increased its focus on achieving ROCE target of ~40% by 2015, driven by
increasing asset turnover and improving profitability. Minimal investments required to
cater to complex needs of high value luxury segment to lead to higher asset turnover.
n Expect new plant of SMR (Hungary/Brazil) to significantly ramp up from 3QFY12 and
full benefits to be visible in the next financial year.
n Capex estimate for FY12 is Rs 6.5 - 7bn.
Valuations
We forecast ~26% earnings CAGR over FY11-13E and ~ 70 bps improvements in EBITDA
margins on SMR ramp up. Company currently trades at 17.3x/12.9x PER and 8.5x/6.9x EV/
EBITDA on FY12/13 estimates. We have an ACCUMULATE rating with a target price of Rs
260, valuing the company at PER/EV-EBIDTA of 16.6x/8.4x our FY13 estimates. Assuming
~5% EBITDA margin for CY11, Peguform can potentially add Rs 2 to MSSL's EPS in FY13.
Currently, we have not factored in any value from Peguform due to limited information

MOTHERSON SUMI Key takeaways 􀁠 ::Kotak Sec Consumer Congerence,

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MOTHERSON SUMI
Key takeaways
􀁠 The company indicated that Peguform was acquired by the company as it provided highend
interiors and plastic technology which has helped Motherson become one of the top
suppliers of passenger car OEMs globally.
􀁠 Peguform is the second-largest supplier of door panels and third-largest supplier of
instrument panels in Germany. It also holds the leadership position in cockpit assemblies
in Spain. Peguform has 2,000-4,000 ton plastic moulding machines while Motherson
Sumi has 20-2,000 ton plastic moulding machines. Hence, this acquisition gives
Motherson technology to produce heavier and higher-end plastic components in the car.
􀁠 Volkswagen contributes 75% of Peguform revenues. Peguform revenues in 2010 were
~Euro1.36 bn, EBITDA of Euro67 mn and net profit of Euro6.8 mn. Motherson has paid
Euro141.5 mn for 80% stake in Peguform. Motherson Sumi holds 51% stake in
Peguform while Motherson Finance would hold the rest 49% stake. Peguform was thus
valued at ~5.1X EV/EBITDA on CY2010 financials.
􀁠 The company indicated that they expect Peguform to transition by September 2011. The
company’s focus would be to improve ROCEs of the Peguform business. Operating
margins are likely to be lower as Peguform buys a lot of bought-out parts but return
ratios will be higher.
􀁠 The company also indicated that SMR’s new plants will start contributing to revenues
from 2HFY12E. The company had received Euro700 mn order from European OEMs of
the new model launches over the next the next 5-7 years. SMR has 22% market share in
the global rear-view mirror passenger car market. The company has been able to increase
its market share to 53% from 48% in the rear-view mirror market in India.
􀁠 The company expects content per car to increase further both in India and abroad due to
increasing higher price rear-view mirrors in passenger cars in India, becoming a full
system supplier after acquisition of Peguform and increase in requirement of wiring
harnesses due to rising features in a car. The company has also started to supply HVAC
systems to Maruti Ritz and plans to increase that business with Maruti and other
passenger car customers.
􀁠 The company maintained its target of achieving US$5 bn in revenues and ROCE of 40%
by 2015. After the acquisition of Peguform, Motherson Sumi has already achieved a
turnover of US$3.7 bn.

UBS:: Motherson Sumi Systems - Margins miss on new plant costs at SMR

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UBS Investment Research
Motherson Sumi Systems
M argins miss on new plant costs at SMR
􀂄 Event: Q1 FY12 revenue beat; margins miss on SMR plant start-up costs
Motherson Sumi Sytems (MSSL) reported robust consolidated revenue growth of
22.2% YoY to Rs22.7bn (India sales rose 33.6%, international sales rose 16.4%),
which was higher than our estimate. However, its EBITDA margin was lower at
7% due to new plant start-up costs such as high volume tests, trials and operating
expenses. Lower other income, higher interest costs (Rs14.3bn in debt in Q1 FY12,
from Rs12.5bn as at end FY11) and a 43% tax rate (at Samvardhana Motherson
Reflectec (SMR), as new plant costs cannot be offset in tax calculations) limited
PAT to Rs653m, up 9.6%YoY.
􀂄 Impact: margins to improve; SMR/Peguform to support future growth
MSSL has significant capex planned over the next couple of years and expects
margins to improve through H2 FY12. The SMR/Peguform business synergies
from complementary products, internal material sourcing, and a global presence
should support future growth. Management highlighted its target to improve return
on capital employed (ROCE) to 40% by FY14-15. We maintain our estimates.
􀂄 Action: retain positive outlook due to management and SMR turnaround
We like management’s execution ability in turning around its acquisitions, its
capital discipline, and high dividend payout. The recent Peguform acquisition,
SMR improvement, and new order book execution should support high revenue
growth.
􀂄 Valuation: maintain Buy rating with a price target of Rs280.00
We reiterate our Buy rating and Rs280.00 price target. We derive our price target
from a DCF-based methodology and explicitly forecast long-term valuation drivers
using UBS’s VCAM tool. We assume a WACC of 12.0%.

Motherson Sumi Systems - SMR disappoints, Retain ACCUMULATE:: Emkay

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Motherson Sumi Systems Ltd.

SMR disappoints, Retain ACCUMULATE

ACCUMULATE

CMP: Rs230                                        Target Price: Rs260

---

n     Consolidated performance below est. with EBIDTA/PAT being 25%/50% below est. at Rs 1.9bn/653mn. Sharp drop in SMR margins to 5.1% and high tax rate (48%) are the key reasons

n     Drop in SMR margins due to start up cost of two new plants at Hungary/Brazil. As the ramp in production happens margins should return to normalized levels (from 3QFY12)

n     Expect benefits of cross leveraging to start from 2HFY12. Lower our FY12 EPS by 11% to Rs 11.6 to factor in poor 1QFY12. Retain FY12 EPS at Rs 15.7 per share

n     Retain ACCUMULATE rating with a price of Rs 260 per share valuing the company at PER/EV-EBIDTA of 16.6x/8.4x on FY13E. Expect Peguform consolidation from 3QFY12/4QFY12

Hold Motherson Sumi; Target : Rs 223 :: ICICI Securities

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O n e - o f f   n e g a t i v e s   s u r p r i s e ,   f u t u r e   o u t l o o k   i n t a c t
Motherson Sumi (MSL) reported its  Q1FY12 results, which were below
our estimates. The topline growth was fuelled through strong standalone
growth. The topline grew to | 2271.3 crore (I-direct estimate: | 2310
crore), up 22.0% YoY. On a subsidiary level, Samvardhana Motherson
Reflectec (SMR) continued its strong business growth with sales growth
of  ~20%  YoY  at  ~|  1293  crore.  On  the  EBITDA  margins  front,  MSL
witnessed a sharp fall of ~300 bps QoQ. This was primarily due to onetime start up costs (~$ 85 million) incurred in new facilities mainly
catering to the  €800 million orders placed by BMW. On the RM front,
overall costs rose 80 bps QoQ even  as copper prices softened (down
~5%). MSL has initiated the process of acquisition of Peguform Gmbh. It
would complete the deal by Q2FY12E. On the PAT level, the profit came
in below estimates at | 65.3 crore (I-direct estimate: | 100.4 crore) also
owing to higher tax rates in the subsidiaries.
Highlights of the quarter
MSL posted a topline growth on standalone sales at | 741.3 crore (~37%
YoY growth) ahead of expectations as rising content per car (~3.0%) led
to this rise even as PV sales witnessed tepid growth. SMR also had strong
sales  growth  at  ~20%  YoY  as  higher  orders  from  global  majors  came
through. However, on the dampening side, margins were hit as expenses
of ~$85 million related to three specific plants in Hungary, Brazil and
South Africa were mainly booked in Q1FY12. These plants, as per MSL’s
history, seem to be the largest in the sense of capacities and are expected
to cater towards the  €800 million orders placed by BMW in the coming
years. The ramp up of these facilities would be witnessed completely by
Q3FY12E. Hence, it would remain a margin dampener in FY12E.
V a l u a t i o n
MSL is a leading automotive modules and component supplier and has
been improving its content per car.  At the CMP of | 233, the stock is
trading at 21.2x FY12E and 15.7x FY13E consolidated EPS. Using SOTP,
the stake in SMR is valued at | 63/share (0.9x price/sales) while the
remaining business is valued at | 160/share (16x FY13E EPS). We have
arrived at a target price of | 223. We continue to maintain our  HOLD
rating on the stock

Motherson Sumi - Encouraging Q1 „Sales growth strong, but earning miss on one offs::BofA Merrill Lynch,

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Motherson Sumi Systems Ltd.
   
Encouraging Q1
„Sales growth strong, but earning miss on one offs
Motherson Q1FY12 net profit at Rs653mn grew 10%, but missed our estimate by
19%. Key reason for the earnings miss is the sharp jump in start up cost of two
new factories ahead of beginning commercial operation. Key positive take away
for us was (1) total sales growth of 21% including 34% in India despite adverse
macro, and (2) EBITDA growth of 40% in India.
Strength in India business being driven by higher content
Motherson managed to achieve 34% sales growth India in Q1FY12 despite flat
car sales. This was possible due to surprising rise in content per car. Strong sales
growth in Q1FY12 addressed concerns over our expectation of 31% sales growth
in India in FY12e and 21% growth in FY13e.
Global mirror business margin recovery on anvil
EBITDA margin of SMR, the subsidiary operating the automotive mirror business
globally, declined to 5.1% in Q1FY12 compared to our expectation of 8% and
FY12e expectation of 9.5%. Decline in EBITDA margin is owing to full volume trial
run ahead of starting commercial production in a new factory in Hungary. Higher
utilisation from Q2FY12e onward likely to boost margin of SMR.
Maintain Buy on strong growth and upside risks
Motherson is trading at a PE of 17.4x FY12e and 13.2x FY13e. We maintain our
Buy rating owing to 30%+ EPS growth in FY12e and FY13e and over 20% upside
risk to earnings in FY13e owing to possible consolidation of Peguform and SMIEL
which Motherson has decided to acquire recently.

Motherson Sumi to pay €141.5mn to acquire 80% stake in Peguform::Angel Broking

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Motherson Sumi to pay €141.5mn to acquire 80% stake in Peguform
Motherson Sumi Systems (MSSL) along with group firm Samvardhana Motherson Finance
Ltd. (SMFL) has agreed to acquire 80% stake in Peguform GmbH and Peguform Iberica, SL
together with 50% stake in Wethje Entwicklungs GmbH and Wethje Carbon Composite
GmbH. The acquisition would be made through a joint venture company in which MSSL
would hold 51% stake and SMFL would hold 49% stake. The total share consideration for
the transaction is €141.5mn, of which MSSL would pay €72.2mn and the remaining would
be paid by SMFL. MSSL intends to fund its share of acquisition through overseas loan.
We believe the deal is attractively valued at ~5.1x and ~0.25x EV/EBITDA and EV/Sales,
respectively, on CY2010 basis. We expect the deal to be positive for the company in the
long run; however, low operating margins of Peguform Group (4.9% in CY2010 as
against 6.5% for SMR and 11% for consolidated operations) remain a near-term concern.
Currently, we are not incorporating Peguform’s acquisition into our financials as we await
more information on management’s strategy and turnaround plan. At `239, MSSL is
trading at rich valuations of 21x and 17.7x FY2012E and FY2013E earnings, respectively.
We recommend Neutral on the stock.

Motherson Sumi Systems Ltd. US 5bn@2015-on track, Accumulate:: Emkay

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Motherson Sumi Systems Ltd.

US 5bn@2015-on track, Retain Accumulate

ACCUMULATE

CMP: Rs231                                        Target Price: Rs260

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n     Peguform’s (PF) acquisition appears a strategic fit in terms of product, clients and geography

n     SWS’ (25% equity in MSSL) resistance for 100% exposure in PF (non core business) could be the reason for 51:49 JV between MSSL and SMFL (parent of MSSL) to acquire PF

n     Expect acquisition price to be ~Euro 235mn (3.5x CY10 EV/EVIDTA or 0.18x EV/Sales). SMR was acquired at 0.12x EV/Sales. Expect debt attributable to PF ~Euro150 to 200mn

n     Acquisition can be EPS accretive from first year. Retain Accumulate rating