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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%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
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%.
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