Multi Baggers

Motherson Sumi Systems Limited

*Price adjustment: Motherson Sumi Systems declared a bonus issue in the ratio of 1:2 on 20th December, 2013.

Company overview:

Mother Sumi Systems Ltd. is the flagship company of Samvardhana Motherson Group, established in 1986. It is a joint venture between Samvardhana Motherson Group and Sumitomo Wiring Systems (Japan). It is a progressive company providing customers with innovative and value added products, services and solutions. Motherson Sumi Systems is one of the world's leading manufacturers of automotive rear view mirrors and a leading manufacturer of instrument panels, bumpers and door trims in Europe. The company has a presence in 25 countries across 6 continents with group turnover of over USD 5.4 billion.

Financial analysis:

Mothersumi reported healthy quarterly results with a topline growth of 11.7% at Rs.7013.3Crs on account of 22% growth in exports. EBITDA grew 36.5% YoY to Rs.621.6Crs aided by lower raw material cost and lower other expenses resulting in Operating Profit Margin expanding by 165bps YoY to 8.8%.  Bottom line also witnessed a strong growth of 16% YoY at Rs. 242.5Crs primarily on account of the robust topline driven by depreciating rupee and improving overseas demand. Net Profit Margin increased to 3.4% as against 2.4%.

Positives:

We like the stock because -

In order to increase traction in overseas business, the company is incurring a capex of Rs.800Crs of which Rs.650Crs will be invested in overseas plants and remaining Rs.150Crs will be invested in India. Part of the capex will be used by its subsidiary Samvardhana Motherson Reflectec Group for setting up plants in Germany and China.

Its European centric companies SMR & SMP are likely to maintain robust performance with their estimated 2QFY14 EBITDA Margins of 8.3% and 5.5% respectively. Also, recovery in European automotive production will strongly benefit both these companies.

The synergies materializing from the successful integration of acquired business of Visiocorp (SMR) and Peguform(SMP) through in-sourcing is a big positive.

Valuations:

Going forward, we expect Motherson Sumi Systems Ltd. to depict a strong earning growth trajectory with earnings CAGR of ~50% over FY13-15E aided by product launches, customer additions, greater synergies from further integrating its European acquisitions and turnaround of its unprofitable plants.

The stock is presently trades at 26.9xFY13, 18.4xFY14E and 14xFY15E with EPS of 7.6, 13.5 and 17.6 respectively. At the CMP of Rs 166.2, we recommend buying Motherson Sumi Systems Ltd with a target price of Rs 226.67.