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Motherson Sumi Systems – Good Times

April 8, 2010

Motherson could see strong growth in FY11/12e led by – over 25% auto sales growth in India and margin expansion of global mirror unit led by market share gain. Expect sales to rise faster than Industry owing to increase in price of wiring harness as new cars are having more features; increase in market share in plastic parts as Motherson is a key supplier for recently launched Ford Figo among others; and increase in share of automotive AC as Motherson will supply this for the Nissan Micra, which is proposed to be launched by Jul10.

Motherson plans to invest in a new automotive mirror plant in Europe to meet growing demand amidst rise in market share from 28% to 35%. Depreciation in value of Euro though could affect 50% of mirror revenue but is unlikely to hurt EPS as margin could expand on lower cost.

Analysts have raised FY10e EPS by 21% as Q4FY10E could be boosted by (1) FX gain from 9% fall in Euro against rupee and stronger than expected volume growth. Expect the stock to re-rate from PE of 10.7x in FY12e to 13.5x driven by EBITDA growth of 101% y-o-y in Mar2010 quarter; and upcoming disclosure of 2015 vision statement of five fold sales growth.

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