MOSL: MOTHERSON SUMI (INITIATING COVERAGE)-Magical times ahead!-Supportive global trends | Strong growth visibility

​MOTHERSON SUMI (INITIATING COVERAGE): Magical times ahead!; Supportive global trends | Strong growth visibility | Financial discipline

(MSS IN, Mkt Cap USD12.2b, CMP INR372, TP INR458, 23% Upside, Buy)

Motherson Sumi Systems (MSS) is the flagship company of the Samvardhana Motherson Group. The company was promoted in 1986 in JV with Sumitomo Wiring Systems and Sojitz Corporation of Japan. MSSL had started out as a single product (wiring harness) company, but has since expanded its product range to include polymer products (through SMP), automotive mirrors (through SMR) and elastomers. The group has four divisions namely the wiring harness (15%), polymers (52%), mirrors (28%) and others components (5%). The latest acquisition of PKC (100% owned) strengthens MSS presence in commercial vehicle wiring harness segment. The group operates 230 plants in 37 countries and employs over 100k people.

MSS has enviable track record of strong performance with unwavering focus on capital allocation. MSS has evolved as a partner of choice for all most all OEMs in the world, reflecting in increasing share of business and market leadership in all the key businesses that it operates in. It is in sweet spot to benefit from evolving disruptive global automotive trends, which would drive its next wave of growth. MSS is now entrenched in the virtuous cycle of “scale begets scale”, as it would significantly benefit from OEMs focus on vendor consolidation. MSS has strong organic growth opportunities in international as well as domestic market driven by increase in content per vehicle, strong order book and entry in new markets/segment. We estimate MSS’s consolidated revenues/EBITDA/PAT to grow 22%/30%/33.5% CAGR FY17-20E. Consequently, we expect RoCE (post-tax) to improve to 21.2% in FY20 (14.7% in FY17). We initiate coverage with buy rating and target price of INR458.