Motherson Sumi

12 Oct

Exports will be the focus area after the acquisition – Motherson sumi

Update on the Indian Equity Market:

On Tuesday , NIFTY ended higher at 17,991 (+0.26%). All the sectoral indices were gainers, led by PSU Banks (+3.1%), Media (+1.5%), and FMCG (+1.2%). IT was the lone loser, down by (-0.9%). Among the stocks, Titan (+6.1%), Bajaj Auto (+3.3%), and Bajaj Finserv (+3.0%) led the gainers while HCL Tech (-3.7%), HDFC Life (-1.9%), and Coal India (-1.7%) led the losers.

Excerpts of an interview with Mr. Vivek Chaand Sehgal, Chairman , of Motherson Sumi (MS) with ET NOW on 11th October 2021:

  • Acquisition of CIM Tools in aerospace segment will be beneficial for MS. CIM Tools have an order book of more than $200 million and the company will do very well in coming time.
  • Exports will be the focus area because MS set up bases in the different countries with CIM Tools and there will be a rise in exports because of the customers are abroad.
  • CIM Tools is a profit-making company and idea would be to improve it and add to the top line. MS has a clear thinking. They get 40% return on capital employed.
  • MS is acquiring existing profit-making joint venture in China. It is very important because MS is more into in passenger vehicles and this one is all about commercial vehicles .
  • MS has a huge presence in China and company have a huge market that they can then generate in China itself.
  • Opportunity wise in two to three years company will be all over in China. Company is learning about commercial vehicles. It is a wonderful area to get into it because MS is very strong with commercial vehicles globally.
  • Comparing global and domestic business is very difficult. The kinds of cars that are produced outside and the cars in India are very different in terms of value. Every car that produced there has a buyer for it. That means customers are at very good situation. Companies have the orders but they have some supply constraints.
  • The chip shortage and all other things combated with customers in a very strong way. The demand is huge and the situation is also getting better.

Asset Multiplier Comments

  • Auto production cuts and raw material price increase due to inflation might affect company’s performance in the near term.
  • Company is expanding its business in different segments. This will be the growth driver.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Motherson Sumi Systems Limited was ₹ 245/- as of 12-Oct-2021. It traded at 35x/23x/20x the consensus earnings per share estimate of ₹6.89/10.8/12.4 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 254/- implies a PE multiple of 20x on FY24E EPS of ₹12.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

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16 Sep

Semiconductor shortage to persist – Motherson Sumi

Update on Indian Equity Market:
On Thursday, markets ended on a high with Nifty closing 110 points higher to close at 17,630. INDUSINDBK (+7.3%), ITC (+6.6%), and SBI (+4.5%) were the top gainers on the index while GRASIM (-1.8%), BHARTIARTL (-1.3%), and TCS (-1.3%) were the top losers for the day. Among the sectoral indices PSU BANK (+5.4%), PRIVATE BANK (+2.7%), and BANK (+2.2%) were the top gainers, while MEDIA (-1.7%), METALS (-0.6%), and IT (-0.6%) were laggards.

Excerpts of the Interview with Mr VC Sehgal, Chairman of Motherson Sumi with CNBCTV18, dated 15th September 2021:

A lot of struggling semiconductors manufacturers are coming back on stream. However, with the uncertainty and guidance from manufacturers, the company expects this issue to persist beyond Q2CY22.
The sophistication required and the manufacturing processes of these semiconductor chips are extremely complex, the current structural barriers faced by these manufacturers can’t be removed overnight.
Demand has picked up for the entire sector, however, there’s a rise in inventory for OEMs as manufacturers wait for semiconductors to be supplied to complete the production and deliver the automobiles.
OEMs like Motherson Sumi are agnostic towards the engine that is fitted into the automobile, whether EV or ICE. However, the shift towards EV is value accretive for the company.
PLI scheme is more focused on technology transfer and development than actual production, however, these schemes coupled with the EV push by the government will result in robust demand for OEMs.
Raw Material price hikes and other margin pressures are a function of cycles and thus the company is not planning to take any aggressive steps to counter it. Right now the focus is only on delivering on the pent-up demand as fast as possible.

Asset Multiplier Comments:
Semiconductor shortage is an issue that’s going to persist for the upcoming quarters and is universal. The Auto and Ancillary Sector has to bear the brunt until things get better.
Motherson Sumi by the virtue of its product portfolio is indifferent to the ICE/EV competition, thus it is better placed for robust growth ahead once the supply side issues subside.

Consensus Estimates (Source: market screener website):
The closing price of Motherson Sumi was ₹224/- as of 16-September-2021. It traded at 32x/20x/17x the EPS estimate of ₹ 7/₹ 11/₹ 13 for FY22E/23E/24E
The consensus price target is ₹ 256/- which trades at 19x the EPS estimate for FY24E of ₹13/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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13 Jul

Corporate rejig plan will take care of long-term requirements – Motherson Sumi

Update on the Indian Equity Market:
On Friday, Nifty ended -0.4% lower at 10,768. The top gainers for Nifty 50 were Reliance (+3.1%),
HUL (+2.5%), and Sun Pharma (+2.3%) while the losing stocks were Axis Bank (-3.2%), GAIL (-2.8%)
and ICICI Bank (-2.8%). Sectoral gainers for the day were Pharma (+0.9%), Realty (+0.7%) and FMCG
(+0.5%) while the losers were PSU Bank (-2.7%), Pvt Bank (-2.4%) and Bank (-2.2%).

Edited excerpts of an interview with Mr GN Guaba, CFO, Motherson Sumi Systems Ltd (MSSL); dated 07th July 2020 from Economic Times:

  • The Motherson Group last week announced a major rejig in its corporate structure, deciding to demerge its domestic wiring business into a separate listed entity.
  • As per the scheme, MSSL will first demerge the domestic wiring harness business and will get it listed separately. The second stage of the restructuring involves merging the principal holding company Samvardhana Motherson International Ltd (SAMIL) into the MSSL.
  • From the shareholders perspective, for every one share held by them of the MSSL pre-demerger, they will be allotted one new share of the demerged entity.
  • The proposed reorganisation will simplify the Group structure and protect the interest of all shareholders. It will give a fillip to the company’s M&A strategy.
  • MSSL’s partner Sumitomo had been for long keen to have a shareholding in the business which is purely focussed on Indian customers. MSSL was also looking to simplify the structure for the last eight years. They had looked at various alternatives, but could not pursue it on account of changing laws and regulations. 
  • On January 30 2020, the Company decided to have two separate listed companies as they thought this was the best way to protect the interest of all stakeholders including the minority shareholders.  
  • The contribution from the wiring harness business was at Rs 39 billion in FY20 and Rs 44.8 billion in FY19. The business constitutes 5-6 % of the total turnover.
  • MSSL is a leading manufacturer, supplying wiring harness to almost every OEM, including in all categories, CVs, bikes, trucks, passenger cars, etc. They are not chasing market share, since that proposition may compromise the bottom line. Sumitomo’s technical assistance and strategic guidance auger well for the wiring harness business in future. The idea is to clearly focus on the growing trends in the domestic market.
  • MSSL sees this restructuring to be EPS accretive in the first year of the merger’s scheme itself which is FY22E. From the semi-merger point of view, the substantial part of valuation is derived from MSSL itself; this ensures that they have protected the interests of the minority shareholders. This would be as a win-win situation for all.
  • The rejig process is likely to take 12 months or so. Based on the feedback from the Company’s bankers, restructuring will be completed by June 2021; the listing and trading of both the demerged entity as well as the SAMIL are likely to take place from July 2021.
  • The proposed restructuring scheme is a big step taken by MSSL Group. Thus, it will take care of their future long-term requirements.

Consensus Estimate: (Source: market screener website)

  • The closing price of Motherson Sumi System Ltd was ₹ 96/- as of 10-July-2020. It is trading at 41x/17x the consensus EPS estimate of ₹ 2.4/5.7 for FY21E/FY22E respectively.
  • The consensus target price of ₹ 111/- implies a PE multiple of 19.5x on FY22E EPS of ₹ 5.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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17 Dec

Motherson Sumi: FY20 revenue target will be achieved through acquisitions.

Update on the Indian Equity Market:

On Monday, NIFTY50 closed 0.2% lower. NIFTY IT (+1.0%), NIFTY REALTY (+0.3%), NIFTY FIN SERV (+0.1%) closed higher. NIFTY METAL (-1.3%), NIFTY FMCG (-1.2%, NIFTY AUTO (-1.0%) were the top losing sectors. Among NIFTY50 stocks, TCS (+2.8%), HCLTECH (+1.7%) and TECHM (+1.7%) were the top performers. GRASIM (-2.4%), ADANIPORTS (-2.3%) and ITC (-1.9%) were the top losers.

Motherson Sumi: FY20 revenue target will be achieved through acquisitions.

Excerpts from an interview with Vivek Chaand Sehgal, Chairman, Motherson Sumi Systems published in ET Auto dated 15th December 2019.

  • Motherson Sumi has projected $18 bn revenue for FY20. There is no further scope for organic growth and growth will come from acquisitions. The timing of acquisitions cannot be pre-planned. Due to pain in the system, valuations are very low and the management is standing by the March 2020 target.
  • New acquisitions have to be on the management’s terms. They require the new acquisitions to deliver 40% ROCE and are ready to walk away if the criterion is not met.
  • Management has 11 companies under the radar for acquisition. The topline could be anywhere between $30-35 bn. The timeline could be longer but management is confident to hit a number close to their topline target.
  • According to Mr Sehgal, the current situation in Indian automobile space is worse than the 2009 crisis. In 2009, a particular segment of the world was affected and the strike back was fast. Currently, the slowdown is prolonged. Every aspect of not just Indian but the global automotive industry is going through a churn.
  • Motherson is in a better place than peers because almost its entire order book and new plants cater to new models by OEMs.
  • Things should improve in the next 6-9 months with clarity on EU, hopeful end to the American trade war and shift to BS-VI in India.
  • On the global side, some stress is felt in India and China.   Europe is in little stress but is coming out of it. America is in a re-assessment mode and is thinking of build-in America.
  • Motherson has maintained a strategy such that no company, no component, no carmaker should contribute more than 15% of their turnover. In the last five years, they have opened around 34-35 plants around the world. They are working to set up plants in countries where needed. Motherson is not affected so much by the trade wars, because they are producing locally in those places.
  • Peers should focus on cutting costs to bring down the cost of parts.
  • Green shoots are visible but it is uncertain whether the industry has bottomed out.

Consensus Estimate (Source: market screener website)

  • The closing price of Motherson Sumi systems was ₹ 141/- as of 16-December-2019. It traded at 26.1x/ 20.7x/ 17.4x the consensus EPS for FY20E/FY21E/FY22E of ₹ 5.4/ 6.8/ 8.1 respectively.
  • Consensus target price of ₹ 145/- implies a PE multiple of 17.9x on FY22E EPS of ₹ 8.1/-.
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