Motherson Sumi Systems Ltd.

Motherson Sumi Systems Limited (MSSL), the flagship company of the Samvardhana Motherson Group, was established in 1986. It is a joint venture between Samvardhana Motherson Group and Sumitomo Wiring Systems (Japan). The company is a leading global auto component player with presence across 25 countries. The acquisition of Visiocorp in 2009 and Peguform in 2011, has established MSSL as a global Tier-1 supplier to the major OEMs of the automotive industry. With a diverse global customer base comprising of almost all leading automobile manufacturers globally, MSSL is currently the largest auto ancillary in India and also ranked 55th in global auto component suppliers.

Valuation and view

MSSL’s performance remained healthy in Q4FY15 in terms of revenue as well as profitability. The company has recently acquired the wiring harness business of Stoneridge having a turnover of ~USD 300 mn from six manufacturing facilities in Americas and is in the process of acquiring Scherer & Trier. These are by far the largest acquisitions for the core business of wiring harnesses which will provide the company market recognition in North America & Europe and is expected to provide further headroom to growth. Meanwhile, the management has indicated of improving its return on capital employed (ROCE) to 40% on consolidated basis by FY20.

Considering the above aspects, we rate the stock as ‘BUY’ at the CMP of Rs 478.3, attractively placed at EV/EBITDA of ~12.6x and ~9.9x, for FY16E and FY17E, respectively to arrive at a target price of Rs 559, with a potential upside of ~17% for the coming 12 months.

Research Report Motherson Sumi Systems Ltd

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