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MOSL: MOTHERSON SUMI (Buy)-Pressure across businesses; greenfield plant losses reducing

MOTHERSON  SUMI: Pressure across businesses; greenfield plant losses reducing

(MSS IN, Mkt Cap USD5.5b, CMP INR125, TP INR146, 17% Upside, Buy)

 

Operating leverage hurts performance; US plant ramping up as expected

• MSS' third-quarter performance was weak across businesses due to revenue weakness-led operating deleverage. Continued reduction in losses of SMP's greenfield plant was the only positive.
• We cut FY21/22E consol. EPS by 10.5%/9% to factor in near-term volume weakness across key businesses. Maintain Buy as we see scope of twin benefit of a cyclical recovery and a sharp turnaround at the new plant. 

Weak performance despite outperforming underlying industry

• revenue/EBITDA/PAT declined ~5%/11%/23% YoY to INR156.6b/INR12.4b/INR3b. For 9MFY20, consol. revenue increased 4% YoY, but EBITDA/PAT were down 7%/16% YoY.
• Standalone revenue declined 5% YoY led by copper price decline (-5% YoY) and weak PV industry (-8%). EBITDA margin was flat YoY/QoQ at 15% (est. of 15.5%) due to cost savings. PAT grew 18% to INR1.7b (est. of INR1.8b).
• SMP revenue grew ~2% YoY to EUR1.01b (est. of EUR1.1b), driven by ramp-up at greenfield plants. EBITDA margin shrank 60bp YoY (+60bp QoQ) to 4.8% (est. of 4.6%). This was the second straight quarter of QoQ decline in EBITDA losses at greenfield plants (decline of EUR4m QoQ to EUR19m).
• SMR revenue fell 5% YoY to EUR378m (est. of EUR406m) due weakness in Korea/India. EBITDA margin shrank ~100bp YoY to ~10.6% (est. of 11.8%).
• PKC revenue fell ~3% YoY to EUR284m (est. of EUR307m). EBITDA margin improved ~90bp YoY (-220bp QoQ) to ~9.5% (est. of 10.3%).