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MOSL: MOTHERSON SUMI (Buy)-Below est.-weak op. performance; Delay in start to two key SMP plants

Motherson Sumi: Below est.; weak op. performance; Delay in start to two key SMP plants

(MSS IN, Mkt Cap USD11.7b, CMP INR356, TP INR437, 23% Upside, Buy)

 

• Healthy growth at SMP, PKC drives consol. revenue: revenue grew 35.8% YoY to INR143.9b (est. of INR137.9b), as healthy growth in SMP (+24% YoY), PKC (+20% YoY) and S/A business (+15% YoY) compensated for muted growth in SMR (+1.1%). While SMP growth was led by ramp-up of new plants and PKC sales were led by commercialization of a second JV in China, SMR was impacted by weak volumes of Hyundai Group and a strong EUR.
• Lag in RM inflation pass-through impacts EBITDA: margin shrunk 180bp YoY (-60bp QoQ) to 8.7% (est. of 9.6%), primarily led by a lag in RM pass-through and start-up costs for a new plant. SMP’s margin expanded for the third straight quarter to 7.6%, while SMR’s margins too expanded 110bp QoQ to 11.2%. However, PKC margin shrunk sharply by 240bp YoY (-40bp QoQ) to 7% due to supply-side issues. Higher depreciation, interest and tax led to below-estimate adj. PAT of INR3.6b (est. of INR4.1b).
• Key takeaways from concall: a) Two key new plants of SMP (US and Hungary) are delayed by 1-2 quarters. b) PKC entered into a tie-up with Zhengao (with a 40% stake in the JV, its 3rd for the Chinese truck market), giving it an entry in Dongfeng. c) Mr Pankaj Mital (COO) is appointed as new CEO of PKC. d) SMR secured its first order for camera management system for replacing mirrors. e) It expects next 2-3 quarters to be big, as benefits of nine new plants start reflecting in P&L.