Motherson Sumi – Review – Long Term BUY on Correction

Motherson Sumi The MultibaggerMotherson Sumi Systems Ltd is a a joint venture of Sumitomo Wiring Systems of Japan and Motherson group of India, is a leading manufacturer of electrical and plastic parts for automobiles globally. It is a market leader for wiring harness in India with over65% share. In Europe it is one of the top three manufacturers for external rear view mirrors, car bumpers and dashboard etc. Currently India contributes 17% of revenue and bulk of its profit.

Motherson is expected to register a 20% CAGR in sales through FY20. Key drivers we see are: an increase in the value of plastic and electrical parts per car (6% per year), and share gains supported by cost competitiveness, strong customer base and technology access. Our assumptions are based on sustained car demand CAGR of 4% globally.

Motherson’s EBITDA margin expansion will likely be driven by – lower wastage due to upgrades to its SMP facilities, better pricing due to the expiry of legacy contracts (end-FY15), higher technology content, both in mirrors (SMR) and plastic modules (SMP) and more supplies to premium cars.

Motherson, with US$5bn in annual sales, has under 0.5% share of the global auto parts market and ranks below No. 40. Leading suppliers like Continental and Denso are leaders, with over US$40bn in annual sales. That said, Motherson is well placed on account of its cost competitiveness, technological capabilities and strong customer relationships.

Motherson, being a supplier of electrical and plastic parts for automobiles globally, is poised to treble sales to US$15bn, boost consolidated EBITDA margins by 50%, to 14.5%, and increase EPS 6x by FY20E, to Rs 55. Assuming the stock’s 1yr fwd P/E remains at its historical average of 15x, the stock could rise more than 3x in the next five years, to Rs820. You can accumulate and BUY more on Correction for Long Term Capital Appreciation. The following Chart as on date is in a Long Term(10 years) Uptrend.
Motherson-Sumi Historical Price