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Motherson Sumi Systems 3QFY2014 performance highlights and results update

February 7, 2014, Friday, 09:50 GMT | 04:50 EST | 14:20 IST | 16:50 SGT
Contributed by Angel Broking

Motherson Sumi Systems (MSS) recorded strong 3QFY2014 results, driven by robust performance at Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP). SMP turned profitable during the quarter, posting a net profit of Rs.29cr (against a loss of Rs.49cr in 2QFY2014), while EBITDA margins at SMR touched double digit levels (sharp expansion of 130bp qoq to 10.1%) leading to a record net profit of Rs.59cr. On the standalone front, however, the company reported sluggish results due to a slowdown in top-line growth and margin pressures. The company continues to win new orders with order backlog at ~€6.5bn as of 1HFY2014, which has to be executed over the next five years. MSS continues to report improvement in its operating performance, driven by its strategy of increasing the content per car, improvement in utilization levels at the new plants and profitability improvement measures at SMP. We expect the company to sustain its strong performance going ahead through increased internal sourcing by subsidiaries and improvement in utilization levels at the plants led by execution of new orders. As a result, we expect MSS to register a strong revenue and net profit CAGR of ~17% and ~40% respectively over FY2013-15E. We recommend an Accumulate rating on the stock.
Strong performance in 3QFY2014: The consolidated revenue grew strongly by 19.9% yoy (10.3% qoq) to Rs.7,989cr, ahead of our estimates of Rs.7,610cr, on the back of the strong growth in SMR and SMP revenues. The revenues at SMR and SMP grew at a robust rate of 30.2% and 22.8% yoy respectively driven by execution of new orders coupled with a favorable currency movement. The standalone entity though posted a modest top-line growth of 3.9% yoy due to a slowdown in the domestic markets. On the operating front, consolidated margins stood flat sequentially at 9.6% (up strongly by 195bp yoy), broadly in-line with our estimate of 9.9%, driven by improving capacity utilization levels at SMR and SMP. While raw-material cost pressures were witnessed during the quarter, continuous ramp-up at the new facilities mitigated the impact on the margins. SMR margins witnessed a sharp improvement of 130bp qoq to 10.1%; however, standalone margins contracted 170bp qoq to 19%, primarily due to commodity cost pressures. SMP margins remained flat sequentially at 5.9% during the quarter. The Adjusted consolidated bottom-line increased by a strong 33.5% yoy to Rs.223cr.
Outlook and valuation: At Rs.202, MSS is trading at 14.9x its FY2015E earnings. We recommend an Accumulate rating on the stock with a target price of Rs.220.