Motherson Sumi Systems rating – Buy: Strong FCF sped up cut in debt in FY21

Employees assemble wire harnesses on the Motherson Sumi Methods Ltd. wiring harness plant in Faridabad, India, on Thursday, Feb. 28, 2013. Motherson Sumi Methods Ltd., 25 % owned by Sumitomo Electrical Industries Ltd. and India’s largest auto elements maker, provides rear view mirrors, bumpers and physique panels to purchasers together with Porsche Automobil Holding SE, Bayerische Motoren Werke AG and Volkswagen AG. Photographer: Brent Lewin/Bloomberg

Motherson Sumi Systems’ (MSS’) Q4FY21 working earnings had been according to consensus estimates as Ebitda margin got here in at 10.1% (up 154bps y-o-y). Nonetheless, FCF technology for FY21 positively stunned consensus at ~Rs 30.3 bn resulting in web debt discount (ex-leases) at Rs 48 bn (down ~Rs 21 bn y-o-y/ lowest ever debt/Ebitda: 1.2x). Administration expects SMP’s greenfield crops to achieve PBT breakeven quickly (we count on FY22); that is more likely to enhance earnings progress in FY23.

DWH enterprise is more likely to unlock worth (publish restructuring) as among the best proxies of electrification/hybrid theme in India. Japanese partnership, technological power and top-quartile financials are more likely to create shortage premia for it. General, we proceed to love the FCF technology assemble; inventory stays engaging with FCF yield of ~4%/6%/11% for FY21/FY22/FY23, respectively. Preserve Purchase.

Key highlights of the quarter: General consolidated revenues stood at ~Rs 169 bn (up ~18% y-o-y) led by PKC (up ~27% in EUR phrases). The standalone enterprise reported income progress of ~28% to ~Rs 12.7 bn as margins had been decrease at 13.7% (down 78bps) attributable to quarter lag of RM pass-through. PKC and SMR witnessed 15bps and 166bps y-o-y contraction in reported margins at 8% and 12.9%, respectively, whereas SMP reported 411bps growth at 8.7%. Robust cashflows aided debt discount (web debt down by ~Rs 14 bn q-o-q).

Key takeaways from earnings name: (i) Orderbook dimension reached EUR15.6 bn (25% from EVs) with EUR4.5 bn of recent orders in H2FY21; EV order execution to be ramped up as buyer programmes collect tempo; (ii) SMRPBV witnessed robust working capital enchancment (down from 11 to five days); general capex for MSS to be Preserve Purchase: The sturdy orderbook progress (20% bounce over H1FY21) at EUR15.6 bn rising BEV content material (share of pure BEV orderbook at 25% vis-a-vis 21% in H1), is more likely to assist content material per car enhance thesis.

The present crops could be ample to execute this increasing orderbook, thus resulting in quicker asset-sweating and RoCE enchancment. We revise our earnings estimates by -0.7%/5.1% for FY22E/FY23E. We worth the corporate on SOTP foundation, with a revised TP of Rs 310/share (earlier: Rs 253).