FREE

MOSL: MOTHERSON SUMI (Buy)-Below est.; weak SMP margins drag consol. Performance

Motherson Sumi: Below est.; weak SMP margins drag consol. performance; PKC shines  

(MSS IN, Mkt Cap USD9.3b, CMP INR305, TP INR388, 28% Upside, Buy)

 

• revenues miss estimate due to accounting change: Consol. revenue grew 12.5% YoY to INR148b (est. of INR156b), impacted to the tune of INR14.5b by Ind-AS 115 adoption. PKC and S/A businesses grew at a healthy 17% YoY each, while SMR business grew by 1% YoY. SMP’s adj. revenue grew 12% YoY to EUR957m, led by ramp-up of new plants.
• adjusted EBITDA margin impacted by SMP: While EBITDA of INR14b missed our estimate of INR14.8b, adj. EBITDA margin shrank 30bp YoY (-100bp QoQ) to 8.7% (est. of 9.6%). Adj. PAT grew 25% YoY to ~INR4.4b (est. of INR4.5b). Adj. EBITDA margin (for Ind-AS 115 impact) at SMP shrank 160bp QoQ (-20bp YoY) to 5.1% (est. of 7.2%), impacted by start-up costs. PKC’s EBITDA margin expanded sharply by 330bp QoQ (+140bp YoY) to 9.5% (est. of 6.8%).
• Key takeaways from the call: (a) No impact of WLTP from Sep-18 – no customer yet has indicated a decline in production volumes. (b) Don’t expect significant capex for organic growth to attain Vision 2020; FY19 capex to be at INR20b; don’t anticipate setting up of new plants to address its existing order book. (c) Reydel consolidation from 2Q, which had revenue/EBITDA of USD1050m/USD67m in CY17. (d) SMR – staying away from lower-margins businesses. (e) PKC well positioned to meet increasing wiring harness complexity in trucks; growth to be driven by higher contents.