Broker's call: Motherson Sumi (Buy)

| Updated on August 14, 2020

Workers assemble wire harnesses at the Motherson Sumi Systems Ltd (file photo)   -  Bloomberg


Motherson Sumi (Buy)

Target: ₹128

CMP: ₹119.85

Q1-FY21 consolidated Rev/EBITDA loss of ₹8,500 crore/-₹630 crore were below our (₹9,900 crore/₹200 crore) estimates. Thus, consolidated net debt inched up ₹2,100 crore q-o-q to ₹9,080 crore.

The management indicated current revenue run-rate at 80 per cent of last year’s level which should touch pre-Covid-19 levels by September and have positive growth by December.

MSS’ restructuring process is on track and management expects the new entity to start trading by July 2021. We expect the merger to be EPS accretive, led by significant improvement in SMRPBV’s profitability by FY22-23. This should align promoter interest with that of minority shareholders, as well.

We revise our estimates to factor in a weaker near term. However, OE volume recovery is visible across India/EU/US, which should drive growth for MSS from H2. We note that MSS’s capex cycle is largely over, and expect healthy FCF of ₹800 crore/₹2,100 crore (adjusted for MSS share) in FY21/FY22.

We maintain our target P/E multiple of 20x, and roll forward our valuation from Jun-22 to Sep-22 to arrive at our raised TP of ₹128 (₹118 earlier). We maintain our Buy rating on the stock.

Published on August 14, 2020

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