We recommend ?BUY? on MOTHERSON SUMI SYSTEMS LTD for a target of INR 379 – valuing the company at P/E 26x of FY19E Earning
Investment Rationale:
- SMG is a global partner of a well balanced customer base spread across five continents, with more than 180 manufacturing plants and a global network of modern design centres.
- MSSL is developing several new facilities around the world and expanding some existing units to cater to customers? growing requirements.
- Growth via inorganic route is much needed to achieve its 2020 target.
- Specialised full system solutions provider to automotive and other industries, offering services from design and prototyping to production and delivery of solutions across a wide range of products.
- Its technologies help carmakers differentiate their products.
- Each division within the company has laid out plans to meet its growth targets, and its derisking policy.
- Extremely diversified customer portfolio.
Valuations And View:
Over the years Motherson Sumi Systems Ltd (MSSL) has successfully collaborated with global technology leaders to further enhance its competency to create technologically sound products in state-of-art facilities and infrastructure to ensure superior efficiencies & total customer satisfaction. We value the business at 26x FY19E EPS and recommend a BUY rating on the stock with a target price of INR 379 per share.
Risk & Concerns
The company in its capacity as an internationally active supplier for the automobile industry is exposed to various risks with each of its business segments and products. The company has global presence and decentralized management structure. Concentrating on the plants make it necessary for implementing an organized risk management system. The Company is therefore exposed to risks associated with global organizations and automotive industry in particular.
Below are the main areas of risks which can impact the company:-
- Price risk
- Forex risk
- Interest rate risk
- Credit risk
- Liquidity risk
- Market risk
- Information technology risk
Company Background
Motherson Sumi Systems Limited (MSSL), the flagship company of the Samvardhana Motherson Group was established in 1986 in joint partnership with Sumitomo Wiring Systems, Japan. MSSL including its subsidiaries and JVs is one of the leading manufacturer of automotive wiring harnesses, mirrors for passenger cars and a leading supplier of plastic components and modules to the automotive industry. Its broad business portfolio includes wiring harnesses, mirrors for passenger car, injection moulded products, modules including dashboards, door trims, bumpers, blow moulded components, liquid silicone rubber moulded components, injection moulding tools, extruded rubber products, precision machined metal components and waste recycling systems.
Over the years MSSL has successfully collaborated with global technology leaders to further enhance its competency to create technologically sound products in state-of-art facilities and infrastructure to ensure superior efficiencies & total customer satisfaction. The company has evolved into a full system solutions provider and caters to a diverse range of customers in the automotive and other industries across Asia, Europe, the Americas, Australia and Africa. With a strong workforce of over 60,000 qualified professionals and 140 manufacturing units spread across 25 countries, MSSL caters to major global OEMs such as Volkswagen group, BMW, Daimler, Renault Nissan, Ford, Volvo, Maruti Suzuki, Tata Motors, Honda, Toyota etc.
Industry Overview
The Indian auto-components industry has experienced healthy growth over the last few years. Some of the factors attributable to this include: a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. The auto-component industry of India has expanded by 14.3 per cent because of strong growth in the after-market sales to reach at a level of Rs 2.92 lakh crore (US$ 44.90 billion) in FY 2016-17. The auto-components industry accounts for almost seven per cent of India?s Gross Domestic Product (GDP) and employs as many as 25 million people, both directly and indirectly. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favourable destination for investment.
