MOSL : MOTHERSON WIRING: Inline; strong revenue growth diluted by higher RM costs
MOTHERSON WIRING: Inline; strong revenue growth diluted by higher RM costs
(MSUMI IN, Mkt Cap USD3.2b, CMP INR79, TP INR95, 20% Upside, Buy)
- Its performance in 1QFY23 was driven by strong revenue growth, though higher RM costs led to a decline in margin. The company is further geared to serve its EV customers with a new line setup in Chennai (in addition to Pune) for high-voltage wire harnesses.
- We largely maintain our FY23 EPS estimate, but raise our FY24 EPS estimate to factor in higher revenue growth, led by a strong recovery in PVs, particularly for MSIL. We maintain our Buy rating with a TP of INR95 (35x Sep’24E EPS).
Weaker mix and higher staff cost offset gains from strong revenue
- Revenue/EBITDA/adjusted PAT grew 50%/85.5%/106.5% YoY to INR16.7b/INR2b/INR1.26b.
- Gross margin eroded 80bp YoY and 110bp QoQ to 35.1% (est. 35.7%), impacted by a weaker mix.
- EBITDA margin eroded 250bp QoQ (up 230bp YoY) to 12.1% (est. 13.2%), on account of higher staff cost (due to start of the Chennai and Bengaluru plants) and slightly higher than estimated other expenses. EBITDA grew 85% YoY (-16% QoQ) to ~INR2.03b (est. INR2.07b).
- Lower depreciation was offset by higher tax, resulting in an inline PAT at INR1.26b (est. INR1.24b) – a growth of 106% YoY (down 21% QoQ).
Highlights from the management commentary
- It has set up a dedicated line at Chennai for high voltage harnesses for Electric 2Ws, EVs, and Buses. This is in addition to the high-voltage wire harness facilities in Pune. It has an order book for high voltage cables from all 2Ws, PVs, and Buses.
- In PVs, 75-80% of wiring harnesses are low voltage, with higher voltage coming in from the batteries and motors.
- Apr-May'22 were weak months for carmakers due to semiconductor shortages, and hence the 1QFY23 earnings need to be seen in that light.
- The fall in copper prices will aid margin (pass through, but there will be a mathematical benefit) and reduce its working capital needs. We expect the benefits to accrue from 2QFY22.
- Capex for FY23 stands at INR1b (+/- INR250m).
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.
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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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