Motherson Sumi (MSSL) reported a good set of numbers for the quarter gone by, wherein its consolidated topline grew by 3.7% yoy, and operating profit expanded 33.2% yoy. Revenues at Rs66.75bn came in line with our estimates, wherein a positive beat in SMR revenues was offset by slightly lower than expected revenues in SMP. Reported operational performance in standalone business (OPM at 22%; +328bps yoy) and in SMR (OPM at 8.4%; +203bps yoy) was much ahead of our expectations. SMP operating margins at 3.1% were slightly below our expectations and were the only disappointment in the results. Driven by robust operational improvement in its various business units, consolidated operating margins for the company improved to 8.5% (+187bps yoy).
Stellar performance in MSSL standalone: Standalone business reported revenues at Rs12.3bn (in line with estimates) implying a growth of 1.7% yoy. The growth looked moderated on back of a higher base in Q4 FY12 owing to SMIEL merger. Notably, full year revenues for SMIEL were consolidated in the Q4 FY12 turnover as against the one quarter revenues in Q4 FY13. MSSL’s standalone business witnessed a strong operating performance wherein the OPM (excl forex effect) improved to 22% higher by 328bps yoy and 303bps qoq.
Margins continue to improve in SMR: At SMR, revenues at Rs19.2bn grew a robust 21.5% yoy (12.3% in euro terms). Hungary plant improved the utilization levels to ~60% and other significant plants of Brazil and Thailand set up last year have also started production contributing to the revenue growth. Meanwhile, ramp up of these new facilities continued to reflect in EBITDA margins (excl forex exchange gains/losses) which improved to 8.4% vis-à-vis 6.4% in Q4 FY12 and 7% in Q3 FY13. At SMR, we note now ~65% of wiring harness requirement is in-sourced and more is expected to come in from the new project wins. Going ahead, new plants capacity utilization and the in-sourcing opportunities would remain key for the margin improvement.
Slower margin recovery in SMP: It was a slightly subdued quarter for SMP, which reported a revenue decline of 4.8% (12% in euro terms). Management attributed the decline to three car models going in for refreshes in the coming quarter. OPM indicated weakness and declined by 82bps qoq. We note that the four of the five loss making plants have broken even. Going ahead, key to margin recovery would be in-sourcing opportunities in the new order wins for the company. Management apprised of new order wins of 2.4bn euros (an incremental ~0.8bn euro to previous guidance) which would be executed from FY15. Management guided for some meaningful opportunities in plastic parts in-sourcing from Q3 FY14 onwards.
SMR continues to focus on its strategy to diversify the business from the European customers by supplying to Japanese players such as Honda and also Renault-Nissan. However management apprised for two years time when the bidding for these customers will take place.
The consolidated gross debt levels were noted at Rs49bn vis-a-vis Rs46bn at end of Q4 FY12 mainly on back of ~7% yoy depreciation in INR against the Euro. The company guided for a total capex of ~Rs7-8bn in FY14, majority of which would be on SMP.
We slightly lower our margins assumptions at SMP (lower by ~30bps to 5.2% in FY15E) to factor in chances of slower than expected margin recovery. However, we revise margin upwards for SMR as we note increasing utilization levels and in-sourcing opportunities in new-project 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 recommend BUY with a 9-month price target to Rs240.
|As a % of net sales||Q4 FY13||Q4 FY12||bps yoy||Q3 FY13||bps qoq|
Result table (Consolidated)
|(Rs m)||Q4 FY13||Q4 FY12||% yoy||Q3 FY13||% qoq|
|OPM (%)||8.5||6.7||187 bps||7.6||88 bps|
|Effective tax rate (%)||41.9||36.1||36.6|
|Other provisions / minority||(297)||(338)||(12)||48||(719.8)|
|Adj. PAT margin (%)||2.4||1.6||87 bps||2.5||-9 bps|
|Foreign exchange loss/(gain)||346||952||
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