Broker’s Call: Buy Motherson Sumi

| Updated on November 17, 2020 Published on November 17, 2020

Edelweiss Fin

Target: ₹162

CMP: ₹130.50

Motherson Sumi (MSS) reported strong operational performance, with EBITDA margin showing 100 bps improvement y-o-y to 9.3 per cent in Q2FY21, which was above our expectation. Clocking breakeven for new green field capacities of SMP, including the Tuscaloosa facility, was key a highlight. Domestic standalone business, too, reported improvement in margins by 30 bps to 10 per cent despite 2 per cent drop in topline.

Going forward, with demand scenario improving and teething issues for new plants now behind, we believe new order execution from these facilities, coupled with improving profitability as operations scale up, presents healthy upside in financial performance from these levels. Aggressive cost control and process improvement measure taken during the lockdown helped the company improve performance across businesses.

Guidance towards profitability improvement and debt reduction, along with good growth visibility in order book going ahead, are encouraging. We may see earnings outperformance in coming quarters as profitability of the new facility will improve with the scale, coupled with pick-up in overall demand.

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Published on November 17, 2020
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