Initiating Coverage on Motherson Sumi Systems - Nirmal Bang

With 124 manufacturing facilities spread across 25 countries, Motherson Sumi Systems Limited (MSSL) is emerging as a one-stop-shop for OEMs.

Investment Rationale

Strong performance from acquisitions: The management of MSSL has an impeccable track record with regard to turning around acquisitions (Visiocorp, now SMR) in the past. We are confident of the fact that the management will replicate the same performance in case of SMP also, going forward ( initial signs of improvement seen with EBITDA margin improving from 1.6 per cent to 4.2 per cent on a q-o-q basis)

Moving towards vision 2015: MSSL is gradually inching towards vision 2015 and has performed on all parameters except RoCE. We expect the RoCE to improve over the next 2-year period on the back of signification traction from the acquired company, Peguform (now SMP).

Growth not at the cost of equity: MSSL has grown its revenues at a CAGR of more than 35 per cent over the last decade but the corresponding equity dilution during this period stands at ~10 per cent only.

Investor-friendly policies: MSSL not only has an excellent dividend pay-out ratio but also has a history of rewarding shareholders in terms of bonus issues at regular intervals. The present price is cumbonus (1:2, ex-date: October 3, 2012).

Valuation & Recommendation

We expect MSSL to post net sales of Rs.25550 crore in FY'13E with a PAT of Rs.254.5 crore. This translates into an EPS of Rs.9.7. The company should post net sales of Rs.27560 crore in FY'14E. This, coupled with an improvement in overall margins should lead to a PAT figure of Rs.667.9 crore, translating into an EPS of Rs.17. At the present price, the stock is available at less than 13x FY'14E earnings. We recommend a "BUY" with a target price of Rs.240 over the next six months.

Source : Equity Bulls

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