Given the recent correction in Motherson Sumi Systems, we upgrade the stock to Buy (from ADD). We believe the company is well-placed to capitalise on the recovery in auto demand and improvement in chip supply from H2CY22e onwards. The company is well-poised to benefit over the medium term from increase in electronics content per vehicle in passenger vehicles, strong relationship with OEMs, shift towards electric vehicles and consolidation of suppliers, especially in the plastic component industry globally.
Global automotive industry remains volatile; expect strong recovery from H2CY22e onwards
The SMRPBV business has majorly been impacted due to supply-side pressures faced by its key customers such as Daimler, Volkswagen group, Hyundai, among others, which is expected to improve from H2CY22e onwards with chip sector manufacturing capacity enhancements. Demand conditions continue to remain strong on account of improved consumer confidence, preference for personal mobility and ongoing economic recovery. Even as the global automotive industry is expected to grow by 7% CAGR, we expect SMRPBV’s revenues to grow by 11% CAGR led by ramp-up of greenfield plants, higher content growth and market share gains.
Increase in BEV programmes mix in order book to drive content growth
We expect SMRPBV’s content per vehicle to increase as customers globally shift towards EVs over the medium term.
27% of the SMRPBV’s order book (EUR15.3 bn) constitutes of dedicated EV models as of September 2021. With rise in demand for EVs, we expect overall realisations to inch higher due to increased need for aesthetic features and light weighting.
Demand scenario in domestic PV segment remains on a strong footing
We expect standalone business (including DWH) revenues to grow by 25% CAGR over FY2021-24e led by (i) strong recovery in the PV segment from FY2023e led by improvement in chip supplies and (ii) higher ASPs on account of RM inflation. Demand for PV continues to remain strong with pending order backlog of 0.7 mn units (25% of FY2021 domestic sales), which bodes well. Economic disruption due to Omicron remains the biggest risk.
Cut our FY2022-23e EPS by 6-8%
We have cut our FY2022-23e consolidated EPS estimates by 6-8% on lower revenue growth assumptions for SMRPBV and PKC businesses given uncertainty related to chip supplies as well as the Omicron variant. We upgrade the stock to Buy as we believe the company is well-positioned to benefit once the global automotive cycle recovers given its well-diversified customer base as well as product offerings.
FV revised to Rs 255 (from Rs 265.)
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