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Motherson Sumi Systems – Accumulate

February 3, 2008

Motherson Sumi’s EBITDA margin declined as it scaled up operation in line with its key customer Hyundai Motor India’s upcoming new factory. Delay in commissioning of Hyundai’s Motor’s new factory in India from Oct 07 to Feb 08 has contributed to increase in staff and other expenditures and hence impacted Q3 FY08 margin.

With Cehnnai shedding the image of IT capital to become the Detroit of India, expect more action in Automobile industry. Doubling of capacity at Hyundai India, which is facing severe capacity constraint, is likely to drive stronger revenue growth and margin expansion from Q4FY08 onwards.Motherson Sumi is also expected to see stronger growth in non-automotive business from Q1FY09 onwards as it had signed up new customers. Expect the company to report Rs621mn net profit in Q4FY08, implying a growth of 43%.

Motherson Sumi is expected to report an EPs of Rs 4.33 for Fy08 and Rs 5.46 in FY09. Accumulate the stock below Rs 81 for a price target of Rs 120.

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