Broker's call: Motherson Sumi (OP)

| Updated on September 07, 2020


Motherson Sumi (OP)

Target: ₹135

CMP: ₹113.95

We like Motherson’s product mix as well as track record of consistently delivering on its inorganic strategy.

A global auto recovery, improvement in performance of greenfield plants and announcement of the next 5-year plan are key triggers.

We like Motherson Sumi’s diversified product portfolio of polymers (51 per cent of revenue in FY20), wiring harnesses (27 per cent) & vision systems (20 per cent) as we expect content per vehicle to rise in most of these segments and EV risk to be lower too. Motherson has an impressive track record of delivering on its inorganic strategy.

We expect revenue to compound at a 12 per cent CAGR and the EBITDA margin to expand to 10 per cent+ over FY22-23 vs. 6.5 per cent in FY21. We estimate better performance of greenfield plants should add over 200 bps to the margin.

Motherson is also expected to announce its next 5-year plan (2020-25) soon, likely in November. Restructured entity to be reflected from April 2021. The company recently announced a restructuring, which involves hiving off the domestic wiring harness business into a separate listed entity and merging SAMIL’s business including its 49 per cent stake in SMRP BV and stakes in other JVs. The process is expected to be completed in the next 12 months.

Published on September 08, 2020

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