ICICI Direct recommended hold rating on Motherson Sumi with a target price of Rs 110 in its research report dated June 03, 2020.
ICICI Direct's research report on Motherson Sumi
MSSL reported decent Q4FY20 performance. Standalone revenues (largely includes Indian operations) came in at Rs 1,735 crore (down 6% YoY), while EBITDA margins stood at 17%, up 200 QoQ on the back of savings realized in raw material costs. Consequent standalone PAT stood at Rs 386 crore, supported by higher other income (dividend from subsidiaries). On consolidated basis, top line in Q4FY20 came in at Rs 15,159 crore (down 12% YoY), while EBITDA margins stood at 9.2%, up 130 bps QoQ. Expansion in margins can be largely attributed to 130 bps gross margin expansion. Consequent consolidated PAT stood at Rs 183 crore, down 55% YoY. Consolidated net debt declined by ~ Rs 1,200 crore YoY to ~Rs 6,800 crore as of FY20 end.
Outlook
Valuing MSSL at Rs 110 i.e. 20x P/E on FY22 EPS of Rs 5.4, we retain HOLD rating on the stock. In our opinion MSSL is fairly valued post recent sharp appreciation and CMP prices in the positives. We await meaningful movement on demand recovery and business derisking before revisiting our stance, however we continue to draw comfort from MSSL’s excellent capital efficiency (25% consolidated RoCE ex-greenfield).
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