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MOSL: MOTHERSON SUMI (Buy)-In-line-Performance improves across businesses; Order book at new high

Motherson Sumi: In-line; Performance improves across businesses; Order book at new high

(MSS IN, Mkt Cap USD9.8b, CMP INR317, TP INR423, 33% Upside, Buy)

 

• Healthy growth in standalone, PKC, SMP drives consol. revenue: revenue grew 37% YoY to INR154b (est. of INR161.6b), as healthy growth in SMP (+10.5% YoY), PKC (+29% YoY) and S/A business (+22% YoY) offset the weakness in SMR (-3% YoY). While SMP growth was led by ramp-up of new plants and PKC sales were driven by commercialization of a third JV in China, SMR sales were hurt by weak volumes at Hyundai Group and a strong EUR.
• Lag in RM inflation pass-through impacts EBITDA: margin shrank 130bp YoY (+10bp QoQ) to 9.7% (est. of 9.1%), primarily led by a lag in RM pass-through and start-up costs for a new plant. Margins expanded at SMP (+100bp QoQ, -30bp YoY to 6.7%), SMR (+190bp QoQ, +100bp YoY to 13.1%) and standalone (+240bp QoQ, -90bp YoY to 18.5%). PKC margin was stable QoQ at ~6.2%. Adj. PAT fell 2% (+45% QoQ) to ~INR5.3b (est. of ~INR5.2b).
• FY18 consol. revenues/EBITDA/PAT grew 33%/23%/6%. The company declared a dividend of INR2.25/share (v/s ~INR2/share in FY17).
• Key takeaways from the call: a) Highest-ever order book of EUR17.2b as on FY18. b) PKC -contribution from 3rd Chinese JV with Zhengao (40% stake) supported revenues. c) S/A margin impacted by a lag in RM inflation pass-through. d) SMR revenue impacted by weak growth at Hyundai and Kia. e) SMP - start of production at Hungary plant in 1QFY19 and other plant in 3QFY19 to limit start-up cost. f) PKC performance to be at par with other wiring harness businesses in 2-3 years, led by rising backward integration.