Motherson Sumi Shares End At 10-Month High As Analysts Raise Targets

Shares of Motherson Sumi Systems Ltd. rose to their highest in 10 months after analysts hiked price targets on one of the world’s largest auto component makers, citing healthy order book aided by a recovery in the automobile sector, growth via inorganic routes and improving margin, among others.

The auto parts maker, which counts Audi AG, Daimler AG and Volkswagen AG as its top customers, has laid out four key targets under its Vision 2025, revealed during an interaction with analysts on Friday and Saturday. These are:

• Consolidated revenue of $36 billion and return on capital employed of 40%.
• No country, customer or component will account for more than 10% of the overall revenue.
• Revenue from non-automotive to contribute to 25% of the total revenue.
• Dividend payout of 40% of consolidated profit.

Motherson Sumi plans to fund its growth via internal accruals as it expects strong free cash flow from investments made in the last capex cycle. It also intends to raise debt but with a policy of keeping the net debt to Ebitda ratio below 2.5 times, and through an equity issue if necessary.

That may have also prompted analysts to maintain their bullish investment recommendation on the company. Of the 31 analysts tracking Motherson Sumi, 23 have a ‘buy’ rating and eight suggest a ‘hold’. Shares of the company ended 5% higher at Rs 146.6—the highest since January this year.

Here’s what analysts had to say:

Macquarie

• Maintains ‘outperform’ rating; raises price target to Rs 154 from Rs 135 apiece.
• Inorganic ways will be key to growth.
• Expects to benefit from global auto recovery and bottom-up margin improvement.
• Ability to maintain its historic capital discipline, particularly on RoCE, leverage and dividend payout will be key.
• Raises FY22-23E EPS estimates by 15% to factor in better margins.

Nomura

• Maintains ‘buy’ rating, with price target at Rs 162 apiece.
• Restructuring likely to be EPS-accretive.
• To benefit from strong recovery in passenger vehicle demand.
• Healthy passenger vehicle order book in subsidiary SMRP and commercial vehicle recovery in unit PKC to drive overall revenue.
• Revenue estimate of $10.3 billion by FY23 could have a lot of upside.
• Maintains Motherson Sumi as long-term pick among auto parts suppliers.
• Valuations are attractive.

Emkay

• Maintains ‘buy’ rating; raises price target to Rs 155 from Rs 139 apiece.
• Positive view underpinned by strong management capabilities and expectations of a gradual pick-up in underlying segments.
• Business situation continues to improve with a healthy order book.
• Raises FY22 and FY23 EPS by 13% and 12%, respectively, led by higher Samvardhana Motherson Peguform’ margin assumptions, better scale and aggressive cost savings.
• Ebitda / earnings CAGR likely to be robust at 15% and 28%, respectively, over FY20-23.
• Key Risks: Demand contraction in key markets, weak performance of large clients, adverse currency rates

Motilal Oswal

• Maintains ‘buy’ rating; hikes price target to Rs 160 from Rs 150 apiece.
• Vision 2025, along with ongoing group restructuring will help shape up for next phase of growth.
• Content increase and ramp-up in non-passenger vehicles to drive growth.
• Focus on wiring harness, composite parts, metal/structural parts.
• Stabilisation of SMP’s greenfield plants critical to drive earnings recovery.
• Execution of strong order book and limited capex at SMPBV and India business augur well.
• Best proxy to a global automotive recovery.

Kotak Institutional Equities

• Maintains ‘add’ rating; hikes price target to Rs 155 from Rs 140 apiece.
• Transforming into a diversified group.
• Inorganic growth key to achieveing revenue target of $36 billion.
• Expects free cash flow generation of more than Rs 10,000 crore, assuming no major capex over next three years.
• Valuations are attractive.

Jefferies

• Maintains ‘hold’ rating; raises price target to Rs 130 from Rs 120 apiece.
• Sees strong organic and inorganic growth in autos.
• Raises FY22-23 EPS estimates by 5-8% to factor in better margins for subsidiaries.
• Sustainability of the improvement will be key.
• Sees limited upside potential.