MOSL: MOTHERSON SUMI (Buy)-Weakness across businesses-on track to achieve organic sales target
Motherson Sumi: Weakness across businesses; on track to achieve organic sales target
(MSS IN, Mkt Cap USD5.9b, CMP INR133, TP INR170, 28% Upside, Buy)
- WLTP, slowdown in domestic industry impact revenue: Consol. revenue grew 14.5% YoY to INR165b (our estimate: INR169b), driven by the Reydel acquisition, PKC (+8% YoY in USD terms) and currency tailwinds. S/A revenue declined 4% YoY, led by slowdown in the domestic auto industry and the lagged impact of copper price pass-through. SMP revenue was down ~2.6% YoY in EUR terms (like-to-like) due to the WLTP impact.
- EBITDA margin miss due to weak SMP, PKC and S/A margins: EBITDA grew 11.5% YoY to INR14b (our estimate: INR14.9b), with the margin down 20bp YoY (-10bp QoQ) to 8.5% (our estimate: 8.8%) owing to (a) 30bp YoY contraction in SMP margin due to negative operating leverage and (b) 120bp YoY contraction in S/A margin. Adj. PAT grew just 6% YoY to INR3.9b (our estimate: INR4.4b). For 9MFY19, revenue/EBITDA/PAT grew 13%/14%/3% YoY.
- Key concall takeaways: (a) WLTP regulations impacted the SMP business, resulting in weak revenues for 3QFY19; expect WLTP impact for the next two quarters as well. (b) No change/cancellation in orders/order book due to uncertain market conditions. (c) 2020 organic growth target on track; continues to look at inorganic opportunities. (d) BS6 to result in 10-15% increase in content for PVs and 2Ws. (e) Week-long strike at Audi’s Hungary plant to have impact on SMRPBV in 4QFY19.
Motherson Sumi Systems is engaged in the manufacturing of rearview vision systems, interior and exterior modules and wiring harness. Co.'s business portfolio comprises electrical distribution systems (wiring harnesses), automotive rearview mirrors, polymer processing and tooling, elastomer processing, metal machining, and information technolgy, engineering & design. Co. also provides manufacturing support, including compressors, paint coating equipment, auxiliary equipment for injection moulding machines and automotive manufacturing engineering services.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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