Buy Motherson Sumi Systems; target of Rs 116: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Motherson Sumi Systems

MSS Q4FY20 consolidated performance was healthy led by healthy margin beat across key business such as SMR at 14.6% (+300bp YoY, PLe 11%), PKC 8% (-50bp YoY, PLe 7%) and S/A at 17% (-120bp YoY, PLe 15%). While these performances will not sustain in 1QFY21, it will see sharp recovery from 2Q led by cost savings from 'Project victory' and ramp-up of plants across business. Going ahead with further ramp-up of greenfield plants, healthy order book at Eur13.6bn with SOP (start of production) of Eur10.1bn orders and BS6 content increase at S/A level, we factor in revenue/EBITDA CAGR of 10%/18%. We upgrade FY21/22 EPS by 15-19% as we increased margins by 70bps each to factor in for cost efficiencies.

Outlook

We have also increased target multiple to 18x (from 16x) due to improved order execution and continued focus on debt reduction. We maintain BUY with price target of Rs116 (Rs87).

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