Morgan Stanley has maintained overweight rating, but cut price target Rs 149 (from Rs 157 earlier), saying Motherson should see strong earnings growth driven by BS-VI transition
Shares of Motherson Sumi Systems rebounded with 1.6 percent gains intraday on February 11 after analysts retained positive stance considering the margin improvement in SMP, though the domestic performance was disappointing.
The stock had fallen 5.6 percent in the previous session post Q3 earnings and amid likely impact of China's fast-spreading coronavirus. It was quoting at Rs 126.10, up Rs 1.15, or 0.92 percent on the BSE at 10:52 hours.
"Although the near-term revenue outlook remains subdued due to weakness in China passenger vehicle (PV) and North America commercial vehicle (CV) segments, we expect 11 percent revenue CAGR over FY20-22, driven by a recovery in India PV segment and ramp-up of SMP’s new greenfield plants," Emkay Global said.
Due to a reduction in revenue and margin assumptions, the brokerage reduced its FY21/22 EPS estimates by 9-7 percent to Rs 5.9-7.4. Despite the cut, earnings growth is expected to be robust at 25 percent CAGR over FY20-22, it said.
Average free cash flow (FCF) is expected to be strong at Rs 3,200 crore per year over FY21-22, said Emkay which maintained its buy call with a target of Rs 148.
While maintaining the buy call with a price target of Rs 175, JM Financial feels going forward, margin trajectory of MSSL is likely to improve driven by recovery in European Union (EU) auto sales, better-operating efficiencies and cost reduction efforts by the company at its existing and greenfield facilities.
As management remained focused on reducing losses at greenfield facilities and production of BS6 variants ramps-up (in the domestic PV market), margins are likely to bottom out this fiscal, it feels.
The brokerage estimated 16 percent CAGR in consolidated earnings over FY19-22. "European slowdown during CY20 and slower-than-expected ramp-up at greenfields are key risks to our investment view."
Motherson Sumi's Q3FY20 revenues fell by 5 percent YoY to Rs 15,661 crore, while profit dropped 30.5 percent YoY to Rs 270.5 crore. EBITDA declined 11.4 percent to Rs 1,235 crore and margin contracted by 100bps to 7.9 percent. The sequential decline in margin was 40bps due to 50bps/220bps sequential decline at SMR and PKC.
Numbers were below estimates due to weak performance in overseas businesses but the continuation of SMP margin expansion (up 60bps QoQ to 4.8 percent supported by lower losses at greenfield facilities) was positive. The poll of analysts conducted by CNBC-TV18 had estimated profit at Rs 384 crore on revenue of Rs 16,889 crore and EBITDA at Rs 1,412 crore with margin at 8.3 percent for the quarter.
Rear vision systems maker Samvardhana Motherson Reflectec (SMR) reported 8.8 percent YoY decline in revenue at Rs 3,036 crore with EBIT falling 25.5 percent.
Samvardhana Motherson Peguform (SMP), the manufacturer of exterior and interior modules for the automotive industry, showed a 1.7 percent YoY degrowth in revenue at Rs 8,118.4 crore with EBIT declining 80.8 percent YoY.
Going ahead with further ramp-up of greenfield plants, healthy order book at 18.4 billion euros (as of September 2019 including new orders of 3.8 billion euros in first half of FY20) and SOP (start of production) of 3.7 billion euros orders in first half of FY20, SMRPBV's revenues are expected to grow at around 11.7 percent CAGR over FY19-21, said Prabhudas Lilladher.
On the other hand, while management indicated it is yet to know the impact of Coronavirus, they also indicated none of Motherson Sumi's plants has yet shutdown. "While we see near term weak performance at PKC and SMR, we believe SMP to continue lead the recovery."
Therefore, the brokerage maintained its accumulate rating with a target price of Rs 153 (earlier Rs 160), based on 19x Mar'22E EPS. It downgraded FY21/22 EPS by 5 percent each to factor in for higher depreciation and weak performance at SMR and PKC.
Morgan Stanley has maintained overweight rating, but cut the price target Rs 149 (from Rs 157 earlier), saying Motherson should see strong earnings growth driven by BS-VI transition.
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