Motherson Sumi Systems -robust performance, outlook upbeat; Buy: Anand Rathi

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Motherson Sumi Systems
Continued robust performance, outlook upbeat; Buy
Motherson Sumi Systems (MSSL) registered a good 3QFY11,
driven by robust standalone performance and sustained traction
at Samvardhana Motherson Reflectec (SMR). We re-iterate Buy
on the stock and raise target price to `221 from `192 earlier.

 Strong standalone performance. While MSSL saw standalone
revenue growth of 72.1% yoy, it sustained a healthy EBITDA
margin at 16.6%. Boosted by healthy revenue growth and higher
other income, adjusted profit grew 85.1% yoy to `759m.
 Steady at SMR. An appreciating rupee capped the revenue
growth at SMR – revenue was up 13% yoy in euro terms, but flat
in rupee terms. SMR saw a healthy 47.7% yoy profit growth, led
by a steady 6% EBITDA margin and absence of restructuring
expenses.
 Consolidated performance maintains improvement. An
improved EBITDA margin of 10.4% and a relatively lower tax
rate drove MSSL’s consolidated profitability higher, by 65.6% yoy.
 Change in estimate. We reduce our EBITDA margin
expectations for SMR, thereby lowering our consolidated EPS
estimates by 9.2% and 3.1% for FY11 and FY12 respectively.
 Valuation and risks. We roll over our target price to FY12e and
increase it to `221 (18x target PE) from `192. MSSL currently
trades at 14.9x FY12e EPS. Risks: slowdown in European
demand; currency risk; and the complicated company structure.