Motherson Sumi (Q3 FY14)

India Infoline News Service | Mumbai |

Motherson Sumi (MSSL) reported another good set of numbers for the quarter gone by, wherein its consolidated topline grew by 19.9% yoy, and operating profit expanded 50% yoy.

CMP Rs203, Target Rs230, Upside 13.3%
  • Motherson Sumi (MSSL) reported another good set of numbers for the quarter gone by, wherein its consolidated topline grew by 19.9% yoy, and operating profit expanded 50% yoy. Revenues at Rs79.9bn came in line with our estimates, wherein the growth in SMR and SMP revenues was much healthier than expected. Reported operational performance in SMR (OPM at 10.4%; +335bps yoy) and SMP (OPM at 5.9%; +193bps yoy) indicated of both the businesses on a trajectory of margin expansion. Standalone operating margins were healthy at 19% and were better than our estimates. Driven by robust operational improvement in its various business units, consolidated operating margins for the company improved to 9.6% (+195bps yoy).

  • In-line Standalone performance: Standalone business reported revenues at Rs11.1bn (8% lower than estimates) implying a growth of 3.9% yoy in a weak domestic auto market.  While the domestic revenues were up by only 2.5% export revenues were strong with a 16% yoy growth. While the exports markets have been slow, we note that there has been steady increase in exports to SMR entity from the standalone business. Management will look for similar opportunities in the SMP business also going ahead. MSSL’s standalone business witnessed a healthy operating performance wherein the OPM (excl forex effect) was recorded at 19% better than with our estimates. 

  • Margins continue to improve in SMR: At SMR, revenues at Rs23.2bn grew a robust 25.9% yoy (9% in euro terms). All the new plants of Hungary, Brazil and Thailand reported high utilization levels and led to the healthy revenue growth. Ramp up of these new facilities and the in-sourcing opportunities continued to reflect in EBITDA margins (excl forex exchange gains/losses) which improved to 10.4% vis-à-vis 7.0% in Q3 FY13 and 8.8% in Q2 FY14. Going ahead, new plants capacity utilization and the in-sourcing opportunities would remain key for the margin improvement.

  • SMP turning around: It was a healthy quarter for SMP, which reported a revenue growth of 22.8% (2% in euro terms). OPM improved to 5.9% (+193bps yoy) which was much ahead of our expectations and indicates of the business turning around. Management guided to maintain its focus on breaking even the two loss making plants. Going ahead, key to margin recovery would remain the in-sourcing opportunities which we build in from Q3FY14 onwards in a meaningful way.

  • The company guided for a total capex of ~Rs11bn in FY14 (raised from Rs8bn earlier owing to weak currency), of which Rs1.5bn would be in the Indian facilities and the rest would be majorly on SMP which has new plants planned. It does not envisage the need for new facilities in SMR in next two years.

  • We have revised the margin assumptions upwards for SMR and SMP, owing to increasing visibility of in-sourcing opportunities in the new order wins. In the standalone business amidst a weak auto market, the ability of MSSL to clock healthy growth and sustain its margins on back of its innovative technology and higher content per car re-instills our belief. We maintain BUY with a 9-month price target to Rs230.
Result table (Consolidated)
(Rs m)
Q3 FY14
Q3 FY13
% yoy
Q2 FY14
% qoq
Domestic
11,461
11,184
2.5
11,635
(1.5)
Exports
67,437
54,295
24.2
60,023
12.4
Net sales
79,887
66,626
19.9
72,430
10.3
Material costs
(50,447)
(42,642)
18.3
(44,863)
12.4
Purchases
(228)
(112)
104.8
(71)
223.1
Personnel costs
(12,726)
(11,027)
15.4
(12,494)
1.9
Other overheads
(8,821)
(7,751)
13.8
(8,059)
9.5
Operating profit
7,664
5,095
50.4
6,943
10.4
OPM (%)
9.6
7.6
195 bps
9.6
1 bps
Depreciation
(2,174)
(1,961)
10.9
(2,030)
7.1
Interest
(703)
(624)
12.7
(661)
6.3
Other income
48
48
1.3
48
(0.2)
PBT
4,835
2,557
89.1
4,301
12.4
Tax
(1,566)
(936)
67.3
(1,305)
20.0
Effective tax rate (%)
32.4
36.6
30.3
Other provisions / minority etc
(1,042)
 

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