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MOSL: MOTHERSON SUMI (Buy)-Misses expectations-new plants ramp-up cost hurts SMP EBITDA margin

Motherson Sumi: Misses expectations; new plants ramp-up cost hurts SMP EBITDA margin

(MSS IN, Mkt Cap USD5.3b, CMP INR116, TP INR144, 24% Upside, Buy)

 

• revenue grew 11.4% YoY to INR172b (in-line), driven by SMP (+18 YoY in EUR terms, led by contribution from greenfield plants and Reydel consolidation), SMR (+4% YoY) and PKC (+14% YoY). However, S/A revenue declined 12% YoY owing to slowdown in the domestic auto industry and the lagged impact of copper price pass-through.
• EBITDA margin misses estimate due to weak SMP margins: EBITDA declined 17.2% YoY to INR12.4b (our estimate: INR15.7b). EBITDA margin shrank 250bp YoY (-120bp QoQ) to 7.2% (our estimate: 9.4%) due to (a) lower SMP margin (-700bp YoY, -350bp QoQ to 1.9%; our estimate: 6.2%) on account of ramp-up cost related to greenfield capacities and SMRC consolidation and (b) 40bp YoY contraction in S/A margin. Adj. PAT declined 23% YoY to INR4b (our estimate: INR4.6b). For FY19, revenue/EBITDA grew 13%/4% YoY, while PAT declined 5% YoY.
• Key takeaways from the call: (a) Expect normalization in SMP margin in 2-3 quarters once new product launches come through. (b) No change in orders/order book due to uncertain market conditions. (c) SMRPBV order book stood at EUR18.2b (including ~EUR2.3b order book of Reydel). (d) Greenfield capacity utilization: Kecskemet - ~60%, Tuscaloosa - 40-45%. (e) Consol. capex to be at INR20-22b in FY20. SMRPBV capex at EUR200m.