motherson sumi - ic - hdfc sec
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8/12/2019 Motherson Sumi - IC - HDFC Sec
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INITIATING COVERAGE 23 JUN 2014
Motherson Sumi Ltd. BUY
HDFC Securities Institutional Research is also available on Bloomberg HSLB <GO>
Expanding expertiseMotherson Sumi (MSSL) is a highly capable and
focussed auto ancillary catering to Indian as well as
global OEMs. Starting with wiring harness systems,
MSSL has acquired and mastered businesses in
several new domains globally. With steadily
increasing content per car (with new
products/assemblies), deal wins in local/global
markets and strategic acquisitions, we think MSSL
can drive 50+% earnings growth (consolidated) over
FY14-16E with rising return ratios and profit margins.While standalone business will be a steady
contributor to consol earnings, we expect the share
of subsidiaries (SMP/SMR) to significantly increase
with (1) expansion in China/US/Europe, especially in
the premium segment (2) turnaround of loss making
plants driven by cost cutting, order wins and rising
capacity utilization (3) synergies with group
companies (5) new client acquisitions and deal wins
across markets.
At CMP, MSSL trades at 22.7/15x FY15/16E consolEPS. Initiate with a BUY; our SOTP is Rs 373/sh.
Ancillary turnaround specialist : MSSL commands a
strong reputation for acquiring and turning around
troubled ancillaries on the request of OEMs. The
company has often contributed in making vendor
chains more efficient for OEMs by acquiring weaker
ancillary units and turning them around.
Two key global subs to drive earnings growth : With
its proven track record Motherson hopes to further
drive the now visible turnaround at SMR and SMP
(both subs have reported higher margins in 4QFY14 ).
We model 16/14/14% revenue CAGR over FY14-16E for
standalone/SMP/SMR businesses and a progressively
disproportionate share of profits kicking in from
SMR/SMP (see inside).
Growth in premium vehicles to benefit MSSL : Order
intake for MSSL/SMR/SMP has increased led by growth
in the premium segment. Favorable product mix
(higher realization, higher margins) adds value to the
company’s operations. Increasing content/car will be akey earnings driver.
China/US/Europe demand key to growth : We expect
improving macros to drive global auto sales. MSSL gets
~54% of consolidated revenues from Europe, while
India contributes ~15%, China ~9% and RoW ~22%. We
expect MSSL’s growing focus in China & US, especially
in the premium segment to drive earnings in the near
future. We also highlight MSSL’s endeavor to reduce its
dependence to not more than 15% of revenues from a
single customer, single country or a single commodity,
a step towards de-risking revenues.
CONSOLIDATED FINANCIAL SUMMARY
(Rs mn) FY12 FY13 FY14 FY15E FY16E
Net Sales 147,022 252,253 303,580 344,658 401,001
EBITDA 10,744 19,440 28,781 37,616 48,166
APAT 3,406 4,445 7,650 12,256 18,545
Diluted EPS (Rs) 3.9 5.0 8.7 13.9 21.0
P/E (x) 107.0 62.5 36.3 22.7 15.0
EV / EBITDA (x) 29.3 16.1 10.7 8.1 6.1
RoE (%) 14.9 21.4 29.2 34.0 35.8
Source: Company, HDFC sec Inst Research
INDUSTRY AUTOS
CMP (as on 20 Jun 2014) Rs 315
Target Price Rs 373
Nifty 7,511
Sensex 25,106
KEY STOCK DATA
Bloomberg MSS IN
No. of Shares (mn) 882
MCap (Rs bn) / ($ mn) 275/4,5696m avg traded value (Rs mn) 350
STOCK PERFORMANCE (%)
52 Week high / low Rs 327/123
3M 6M 12M
Absolute (%) 41.8 55.6 128.6
Relative (%) 26.3 36.5 94.5
SHAREHOLDING PATTERN (%)
Promoters 65.59
FIs & Local MFs 7.43
FIIs 16.91
Public & Others 10.07
Source : BSE
Sorabh Talwarsorabh.talwar@hdfcsec.com
+91-22-6171 7321
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Performance at a glance
Source : Company
0.2 0.3 0.6 1.0 1.1 1.1 1.2 1.5 2.3 3.0 4 6 8 1015 20
26
67
82
147
252
304
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Consol Rev (in Rs bn)
Consolidate India presenceConsolidate &
enhance Global
Capabilities
Global expansion
& product
diversification
Gain firm
foothold as a
Global supplier
FY2010 Target
of USD 1bn
Achieved
USD 1.5bn
Motherson Sumi Systems Ltd.
has delivered consistent
growth with a CAGR of ~40%since 1993
Till 2005, company recorded
revenue CAGR of ~35%, while
consolidating its presence in
the domestic as well as
global markets
FY06-10 saw the sharpest
revenue CAGR for the
company at ~60% led by
global expansion and
diversification
MSSL has grown faster thanthe market by consistently
increasing its customer base
and the content per car
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Exceeding market performance
Source : Company, HDFC sec Inst Research
Corporate actions
1993-94 Public Issue
1995-96 Rights Issue
1997-98 Bonus Issue (1:2)
2000-01 Bonus Issue (1:2)
2002-03 Share split : Face value changed to Rs 5 (2:1)
2003-04 Share split : Face value changed to Rs 1 (5:1)
2004-05 Bonus Issue (1:2)
2005-06 Convertible Bonds (FCCB)
2007-08 Bonus Issue (1:2)
2011-12 Shares issued to shareholders of erstwhile SMIEL
2012-13 Bonus Issue (1:2)
Source : Company, HDFC sec Inst Research
70
90
110
130
150
170
190210
230
250
J u n - 1
3
J u l - 1 3
J u l - 1 3
A u g - 1
3
A u g - 1
3
A u g - 1
3
S e p - 1
3
S e p - 1
3
O c t - 1 3
O c t - 1 3
N o v - 1
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N o v - 1
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D e c - 1
3
D e c - 1
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J a n - 1
4
J a n - 1
4
J a n - 1
4
F e b - 1
4
F e b - 1
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M a r - 1 4
M a r - 1 4
A p r - 1 4
A p r - 1 4
M a y - 1
4
M a y - 1
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J u n - 1
4
J u n - 1
4
Motherson Sumi Sensex
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Samvardhana Motherson Group (SMG)
A diversified group: Samvardhana Motherson Group
(SMG) is a focused, dynamic and progressive global
group with presence in 25+ countries and a
consolidated turnover of USD 5.02bn in FY14.
A globally preferred solution provider: As a full system
solutions provider, SMG offers comprehensive product
range and technical solutions spanning applications
across diverse verticals and industries.
Key entity: Motherson Sumi Systems Ltd. (MSSL), the
flagship company of the Samvardhana Motherson
Group (SMG) is a joint venture between Samvardhana
Motherson International Ltd. (SMIL) and Sumitomo
Wiring Systems, Japan (SWS).
Higher wallet share: The group has been continuously
expanding verticals and product portfolio to capture
higher wallet-share of auto manufacturers.
Synergies within group: Strong synergies across
companies within the group, leveraged with a capable
management at the top, helps turning around newer
acquisitions quicker : a key advantage for the company.
Quick expansion: The group has expanded organically
as well as inorganically in recent years. Access to new
products & technology and expansion in newer
markets/clients remain the underlying driving factor in
company’s growth trajectory.
Wide customer base: Leveraging on strong technical
infrastructure and manufacturing capabilities, company
positions itself as a full system solution provider to its
customers across geographies building a strong
competitive edge and making it the supplier of choice.
Diverse geographies: MSSL’s geographic spread (125
plants across 25 locations) allows it the flexibility of
supplying to customers using best suited logistic
models. Company’s manufacturing facilities are
present across Asia, Europe, North America, South
America, Australia and Africa.
Range of products: MSSL boasts of a wide range ofproducts which includes rearview mirrors, wiring
harnesses, moulded plastic parts, complete modules
including bumpers, dashboards, door trims, air fiIter
systems, HVAC systems, rubber components for
automotive and industrial applications, high precision
machined metal parts and injection moulding hubs.
Managing Relationships: The Company has evolved on
the strength of its relationship with all its stakeholders,
a relationship of mutual trust & respect, growing
steadily across the product range and markets.
Consolidated revenue of USD
5.02bn in FY14, a year ahead
of target (Vision 2015)
Geographic spread allows
flexibility of catering to
customer’s requirement
using best suited logistics
model
Strong synergies acrosscompanies within the group
a key positive for margins
expansion
Rising content per vehicle led
by organic as well as
inorganic expansion earningsaccretive for the company
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Industry position Benefiting with increased OEM sourcing
Source : Company Source : Company
Business portfolio Customer wise sales
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
Rearview
Mirrors
28%
Interior
modules
22%
Wiring
harness
18%
Exterior
modules
17%
Polymer &
tooling
11%
Metal
working1%
IT & Design
1%
Others
2%Audi
20%
VW
19%
BMW
7%Seat
6%
Hyundai
6%
Renault
Nissan
6%
Maruti
Suzuki
5%
Ford
5%
Others26%
MSSL boasts of significance
presence in the wiring
harness, mirrors and IP
modules across all global
markets
Rearview mirrors (~28%) is
the largest contributor to the
consol. revenues followed by
Interior modules (22%) and
wiring harnesses (18%)
MSSL is working towards
reducing dependence to not
more than 15% of revenues
from a single customer,
single country or a single
commodity – a step towards
de-risking revenues
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Group structure
Source : Company
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Motherson Sumi Systems Ltd : A One-stop Solution
Motherson Sumi Systems Ltd. (MSSL) is the flagship
company of the Samvardhana Motherson Group.
MSSL, incorporated in 1986 (listed on exchanges in
1993), is a JV between Samvardhana Motherson
International Ltd. (SMIL) and Sumitomo Wiring SystemsLtd., Japan (SWS). MSSL has grown into a diversified
manufacturer of automotive components with market
leading position in its major product verticals.
Currently MSSL is (1) one of the largest manufacturer
of rearview mirrors for passenger cars in the world (2)
India’s largest manufacturer of automotive wiring
harness and mirrors for passenger cars (3) one of the
largest manufacturers of IP modules, door trims and
bumpers for mainly European OEMs, and (4) a leading
supplier of plastic components and modules to the
global automotive industry.
Product range: Rearview mirrors, wiring harnesses,
moulded plastic parts, complete modules including
bumpers, dashboards, door trims, air filter systems,
HVAC systems, rubber components for automotive and
industrial applications, high precision machined metal
parts and injection moulding tools.
Manufacturing: The Company boasts of a vast
geographical spread with manufacturing presence
across Asia, Europe, North America, South America,
Australia and Africa. This allows MSSL the flexibility to
supply to its customers from various manufacturing
locations using the best suited logistics model.
A Joint venture specialist: MSSL’s strength in
partnering growth has evolved with a number of JVs
for diversified product range. The JVs of MSSL has
helped it to enhance capabilities ranging from adding
new products to bringing new and customizedtechnologies to customers. Vertical integration and in-
house sourcing has further helped in enhancing the
product range and delivering the quality while reducing
costs for the company.
Key business highlights :
- one of the largest
manufacturer of rearview
mirrors for passenger cars in
the world
- India’s largest
manufacturer of automotive
wiring harness and mirrors
for passenger cars
- one of the largest
manufacturers of IP modules,
door trims and bumpers formainly European OEMs
- a leading supplier of plastic
components and modules to
the global automotive
industry
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Standalone revenues grew at 28% CAGR over FY09-14 Standalone business has shown strong traction in the
India as well as outside India revenues
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
Within India (Standalone) revenues grew at 29.4% CAGR
over FY09-14…
…while outside India (Standalone) revenues grew at
22.3% CAGR
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
13.2
17.6
28.6
35.9
43.245.5
0
5
10
15
20
25
30
35
40
45
50
FY09 FY10 FY11 FY12 FY13 FY14
in Rs bn
0
5
10
15
20
25
30
35
40
45
50
FY09 FY10 FY11 FY12 FY13 FY14
Within India Outside India
in Rs bn
0%
10%
20%
30%
40%
50%
60%70%
80%
0
5
10
15
20
25
3035
40
FY09 FY10 FY11 FY12 FY13 FY14
Within India % growth
in Rs bn
-20%
0%
20%
40%
60%
80%
100%
0
1
2
3
4
5
67
8
FY09 FY10 FY11 FY12 FY13 FY14
Outside India % growth
in Rs bn
~86% of the standalone
revenues come from India
sales while rest is fromoutside India
Standalone revenues have
grown led by (1) growth in
the domestic auto industry
(2) rising content/vehicle
with new products (3) better
realizations given growing
sales of mid-higher range
models
Standalone APAT has
registered a 50.4% CAGR
over FY09-14, while EBITDA
registered a 35.1% CAGR
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Wiring harness (standalone) Polymer components (standalone)
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
Rubber/metal machined & other products (Standalone) EBITDA margins maintained at ~20%
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
0%
10%
20%
30%
40%
50%
60%
70%
0
5
10
15
20
25
30
35
40
FY09 FY10 FY11 FY12 FY13 FY14
within India Outside India % growth
in Rs bn
0%
10%
20%
30%
40%
50%
60%
70%
0
2
4
6
8
10
12
FY09 FY10 FY11 FY12 FY13 FY14
within India Outside India % growth
in Rs bn
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
0.0
0.1
0.1
0.2
0.2
0.30.3
0.4
0.4
0.5
0.5
FY09 FY10 FY11 FY12 FY13 FY14
within India Outside India % growth
in Rs bn
0%
5%
10%
15%
20%
25%
0
1
2
3
4
56
7
8
9
10
FY09 FY10 FY11 FY12 FY13 FY14
S tandalone EB ITDA EB ITDA m argin (%)
in Rs bn
Wiring harness (~75% of
standalone revenues) posted
a ~30% CAGR over FY09-14, primarily in the India
business
Polymer components (the
second largest revenue
contributor) grew at ~28%
CAGR over FY09-14
Rubber/metal machined &
other products grew at 20%
CAGR
The company has managed
to deliver steady margins at
~20% over the years
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Samvardhana Motherson Reflectec (SMR)
Background : Samvardhana Motherson Reflectec
(SMR), acquired by MSSL in 2009, is a Germany
headquartered rearview mirror specialist and develops
& produces exterior mirrors for passenger cars and
commercial vehicles (including heavy trucks). SMR is
also an expert for camera based sensing system in the
automotive industry.
Global customer base : SMR’s global base includes all
major car makers in North America, South America,
Europe, Asia and Australia. The company boasts of a
global market share of ~22% in passenger cars and
commercial vehicles rear view mirrors.
Vast product range : Exterior mirrors are the
Company’s largest product segment. SMR’s plants,
spread across the globe, are specialized in polymer
processing, manufacturing of electronic and electro-
mechanical systems, glass processing, automated
painting and the assembly of complete systems. SMR is
also specialized in process to build sub-assemblies
integrated in exterior mirrors.
Global manufacturing base : SMR has been expanding
manufacturing base worldwide (through green-field as
well as brown-field expansion) to meet the growingrequirements of its global consumers. After expanding
footprint in Thailand & Brazil with new green-field
plants, and capacity expansion in Hungary, Spain and
Mexico over FY11-13, the company is focusing on
China & USA, two of the largest and strongest
growing automotive markets.
History : Visiocorp group (originally named
Schefenacker) had a turnover of EUR ~660mn in 2008
supplying to all major OEMs worldwide. MSSL acquired
Visiocorp for a cash consideration of EUR 25mn andallotment of 5% shares having face value of EUR 1.5mn
with no additional debt in 2009. MSSL has a 47.7%
controlling stake in SMR (93.6% along with SMIL).
Synergies post acquisition : Post becoming a part of
Samvardhana Motherson Group in 2009, SMR hasbenefited immensely with the inherent synergies of
the group (1) in-Sourcing from the group companies
(2) sharing of worldwide network of marketing and
project management centres.
SMR has delivered a revenue growth of 26% CAGR
over FY11-14, while the margins have improved
~300bps to 9.7% in FY14 (10.6% in 4QFY14,
substantial improvement from 4.6% in 3QFY12).
Margin improvement is driven by (1) strong order flowfrom the European OEMs (especially in the premium
segment from the likes of Audi, BMW & Mercedes)
(2) cost cutting initiatives (3) synergy benefits with
group companies. We expect SMR to deliver EBITDA
margins of 11/11.8% in FY15/16E. New orders worth
EUR 4+bn, since its acquisition by MSSL, have helped
SMR grow stronger and faster than peers.
Balanced global presence : With its broadened
positioning in both mature and emerging markets, SMR
has a more balanced global presence, making the
company more independent from the economic
development in individual markets and a global partner
for the automobile companies. This has enabled the
company to outperform the market.
USA : SMR has expanded capacity to ~2x with the new
plant in Michigan, commercial production is expected
to commence by FY15. New orders in USA are expected
to increase utilization of additional capacities in
Michigan and lift market shares in the North Americasignificantly within next 3-4 years.
New orders worth Euro 1.56bn
in FY14
SMR commands ~22% global
market share in the passenger
cars and commercial vehicles
rear view mirrors
Presently SMR is focusing on
China & USA, two of the
largest and strongest growing
automotive markets, to
expand revenues
MSSL acquired SMR in 2009
on recommendation from its
clients and has a 47.7%
controlling stake in SMR
SMR has improved margins
~300bps to 9.7% in FY14. We
expect SMR to deliver EBITDA
margins of 11/11.8% in
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China : China currently contributes ~10% of SMR’s
revenue. SMR has a 50:50 JV with Ningbo Huaxang
group (formed in 2007) in China. We expect
contribution from China (higher growth, higher
margins) to improve with the commencement of two
new plants. SMR targets ~25% market share in China
by FY17 (~10% currently). New plants in Chongquing
(Central China), Langfong (Beijing) and Yancheng will
provide excess capacities and higher vertical
integration, leading to better margins and higher
market share for the company.
Europe : Europe currently contributes ~46% of SMR’s
revenue. We expect higher growth in Europe given
better macros and demand revival. Better utilization at
plants and in-sourcing within group will lead to margin
expansion for the company going forward.
Key plans : SMR is strongly positioning itself as a
preferred partner for automakers world-wide and
increasing scope of business. It is among the leadingsuppliers of exterior mirrors in regions where it has a
long presence, while further targeting to reach similar
high market share levels in those markets in which it
has entered within the last decade.
We expect SMR revenues to grow at 14% CAGR over
FY14-16E, while margins to expand from 9.7% in FY14
to 11/11.8% in FY15/16E.
SMR is strongly positioning
itself as a preferred partner
for all automakers world-wide
Growth in China and higher
utilization across are key to
margins expansion for SMR
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SMP : revenues grew at ~30% YoY in recent quarters… …with EBITDA margins steadily expanding
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
Strong revenue growth trend expected to continue EBITDA margins to inch towards ~12% by FY16E
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
5
10
15
20
25
30
3 Q F Y 1 2
4 Q F Y 1 2
1 Q F Y 1 3
2 Q F Y 1 3
3 Q F Y 1 3
4 Q F Y 1 3
1 Q F Y 1 4
2 Q F Y 1 4
3 Q F Y 1 4
4 Q F Y 1 4
Revenues Rs bn YoY Growth
in Rs bn
0%
2%
4%
6%
8%
10%
12%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3 Q F Y 1 2
4 Q F Y 1 2
1 Q F Y 1 3
2 Q F Y 1 3
3 Q F Y 1 3
4 Q F Y 1 3
1 Q F Y 1 4
2 Q F Y 1 4
3 Q F Y 1 4
4 Q F Y 1 4
EBITDA Rs bn Margin %
in Rs bn
0%
5%
10%
15%
20%
25%
30%
35%
0
20
40
60
80
100
120
140
FY11 FY12 FY13 FY14 FY15E FY16E
Revenue % growth
in Rs bn
0%
2%
4%
6%
8%
10%
12%
14%
0
2
4
6
8
10
12
14
16
FY11 FY12 FY13 FY14 FY15E FY16E
EBITDA EBITDA (%)
in Rs bn
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Samvardhana Motherson Peguform (SMP)
Peguform GmbH (Germany), a global Tier-1 supplier of
polymer based automotive modules (like bumpers,
instrument panel, door trims, etc.), was acquired by
MSSL (along with SMIL, 83.7% stake) in Nov-2011 and
renamed as SMP (Samvardhana MothersonPeguform). MSSL (directly) has a 51% stake in SMP.
SMP supplies primarily to the European OEMs (likes of
VW, Audi, BMW, Porsche, Daimler and Renault-Nissan)
with manufacturing plants in Europe, China, Mexico &
Brazil. Peguform was acquired for EUR 141.5mn
(turnover of EUR 1.67bn in 2011), attractively priced.
SMP is MSSL’s largest subsidiary and one of the largest
manufacturers of bumpers, rocker panels, instrument
panels, interior door panels and other related productsfor the European automotive industry. With numerous
patented technologies and industry first innovations in
all product lines, it is one of the most preferred
suppliers for car makers in Europe as well as to their
facilities in China, Brazil and Mexico.
SMP’s major customers include Audi, BMW, Daimler,
GM, Porsche, Renault/Nissan, Seat, Volkswagen, etc.
Geographical expansion : SMP was established in
Germany where most of its products are still produced
and assembled. SMP has continuously expandedglobally, setting up new operations across Europe,
Mexico, Brazil and China to support its customers
across the globe. Spain and Portugal were the first
markets outside Germany followed by Eastern Europe.
SMP with an objective to be located near its customers
established its high volume factories in Mexico and
Brazil in 1996. In early 2013 SMP opened a Greenfield
factory in Pubela, Mexico which replaced the two
existing smaller plants in the region. China is the
strongest growing region in the automotive industryand the youngest market for SMP.
The key to SMP’s earnings growth will be turn around
in the current loss making plants led by (1) better
order inflow (2) synergies in sourcing with the group
companies, and (3) cost cutting initiatives. SMP’s Brazil
plant turned profitable last year (from a EUR70m lossin FY13) led by better prices and improved utilisation.
China : China currently contributes ~12% of SMP’s
revenue. SMP is present in China via a 51:49 JV with
Changshu Automotive Trim Co. (CAIP). We expect
contribution from China (higher growth, higher
margins market) to improve with the commencement
of new plants. Due to strong increase in demands for
high quality products from SMP across China, the
company is currently investing in the establishment of
two new factories in Foshan (South China) & Beijing,scheduled to commence production in 2014. VW
(including Audi) currently contributes ~95% of SMP’s
revenues in China. With supplies commencing to BMW
and Daimler, we expect revenue/margins to improve.
Europe : Europe currently contributes ~80% of SMP’s
revenue. We expect improved macros, better
utilization at plants and in-sourcing within group to
drive earnings for the company going forward.
Synergy with Group : SMP’s capabilities of production
and assembly of highly complex and large modules as
well as its extraordinary technological expertise in
multiple polymers and surface shining enhances the
Group’s positioning as a global full system solutions
provider. SMP has an established international
customer base and manufacturing locations around the
world. Further SMP gives the Group access to
advanced production technologies. MSSL is leveraging
on the horizontal and vertical integration of SMP’s
operations and products. The objective is to expand
the group’s business based on the combined customerbase and geographical footprint significantly and to
New orders worth Euro
2.44bn in FY14
MSSL acquired 83.7% stake
(along with SMIL) in
Peguform GmbH (Germany)
for EUR 141.5mn in 2011
SMP is MSSL’s largest
subsidiary and one of thelargest manufacturers of
bumpers, focussed on the
European manufacturers
The key to SMP’s earnings
growth will be turn around in
the loss making plants
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benefit from best skilled and most cost competitive
production and development resources within the
group.
We expect SMP revenues to grow at 14% CAGR over
FY14-16E, while margins to expand from 4.6% in FY14
to 6.5/7.3% in FY15/16E.
SMP : strong growth visible in recent quarters Margins improved substantially post acquisition
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
Revenue growth of ~14% expected going forward Margins inching towards ~7% by FY16E
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
0%
20%
40%
60%
80%
100%
120%
140%
160%180%
200%
0
50
100
150
200
250
FY12 FY13 FY14 FY15E FY16E
Revenue % growth
in Rs bn
0%
1%
2%
3%
4%
5%
6%
7%
8%
0
2
4
6
8
10
12
14
16
18
FY12 FY13 FY14 FY15E FY16E
EBITDA EBITDA (%)
in Rs bn
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0
5
10
15
20
25
30
35
40
45
3 Q F Y 1 2
4 Q F Y 1 2
1 Q F Y 1 3
2 Q F Y 1 3
3 Q F Y 1 3
4 Q F Y 1 3
1 Q F Y 1 4
2 Q F Y 1 4
3 Q F Y 1 4
4 Q F Y 1 4
Revenues Rs bn YoY Growth
in Rs bn
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
(0.5)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3 Q F Y 1 2
4 Q F Y 1 2
1 Q F Y 1 3
2 Q F Y 1 3
3 Q F Y 1 3
4 Q F Y 1 3
1 Q F Y 1 4
2 Q F Y 1 4
3 Q F Y 1 4
4 Q F Y 1 4
EBITDA Rs bn Margin %
in Rs bn
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New Acquisition : Wiring Harness business of Stoneridge Inc.
Business History : Stoneridge Inc. has a history of 48+
years of wiring harness manufacturing. The Company
also manufactures instrument panels for CVs.
Key clients for the company includes commercial
vehicle manufacturers, agricultural equipment,
material handling equipment and off-highway vehicle
manufacturers. This gels well with MSSL’s key
customer profile. As per agreement with SWS, MSSL
refrains from catering to passenger cars globally
(except in India) while focus on other segments.
We believe the acquisition offers strong synergies in
terms of customer segments, products and global
operations with MSSL’s core business.
Manufacturing facilities include 6 plants located in
Portland, Indiana (USA) and five locations in Mexico
Chihuahua, Saltillo & Monclova. Engineering and
administrative center is located in Warren, Ohio (USA).
Revenue approx USD 300mn, as per company.
Consideration to be paid : USD 65.7mn (fairly
attractive), Structure : Asset purchase. The acquisition
is expected to be completed by 3QFY14.
We believe this acquisition will help MSSL expand its
wiring harness global business in North America
immensely, catering to the commercial vehicles,
agricultural and material handling equipments
markets. Business presence and existing client
relations can further be leveraged to enhance group’s
business in North America. Strong synergies acrossbusinesses at MSSL will drive earnings upwards.
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Valuations and views A global play : MSSL is a strong play on the emerging
markets global auto demand, especially passenger
vehicles at the premium end. Outside India revenue
(consolidated) has grown at ~86% CAGR over FY09-14,
increasing the contribution to ~84% in FY14 (from~44% in FY09). We expect the India/Outside India
revenues to grow at ~15% over FY14-16E. SMP/SMR
revenue growth of ~14% CAGR expected.
Diversified revenue base acts as an efficient hedge
against cyclicality of auto industry (Europe
contributing ~54% of consolidated revenues, India
~15%, China ~9% and other geographies ~22%). The
company boasts of presence in 25+ countries with 125
manufacturing plants across globe.
Reducing dependency on single customer : The
company targets reducing dependency on a single
customer: target <15% of revenues from a single
customer, single country or single commodity.
Widening product portfolio and increasing content
per car, are key earnings positive for the company.
Turnaround in the global subsidiaries to drive
earnings growth : MSSL has a successful track record of
turning around distressed acquisitions by improving
operational efficiencies, reducing costs, building strongorder books and leveraging synergies within the group.
Post acquisition, both SMR and SMP have reported
sharp improvement in profitability. While SMR margins
have improved from 4.6% in 3QFY12 to 10.6% in
4QFY14, SMP margins have improved from -1.4% to
5.8%. Margin expansion has been driven by (1) bettercapacity utilization (2) cost cutting initiatives (3)
restructuring (4) growing synergies among businesses.
SMR margins expanded on better utilization levels in
the new plants. While at SMP margins were led by the
restructuring initiatives
We expect the consolidated margins to improve by
250+bps (from FY14) to 11.9% by FY16E.
China/US/Europe demand key to growth : Initial signs
of demand revival in Europe for cars a key positive
trigger for the company. China luxury sales continue to
outperform. MSSL is aggressively targeting expansion
in China to tap the growing demand.
Valuation
At CMP, MSSL trades for 22.7/15x FY15/16E consol EPS
of Rs 13.9/21. We initiate on Motherson Sumi with a
BUY recommendation and a TP of Rs 373/sh.
Key risks to our investment thesis are: delay in Europe
recovery, acquisition stretching the balance sheet,slowdown in China and commodity prices.
SOTP VALUATION
FY16E EBITDA Multiple MSSL's Stake Value Value/sh
Standalone 13,646 12.5 100% 170,571 193
SMP 15,418 9 51% 70,767 80
SMR 13,969 9 48% 59,968 68
Others 4,922 9 - 44,296 50
Sub total - - - 345,602 392
Less: Consol Debt - - - 16,443 19
Target Price - - - - 373Source: HDFC sec Inst Research
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KEY ASSUMPTIONS Year ending March FY12 FY13 FY14 FY15E FY16E
Standalone MSSL
Revenue 35,289 42,413 44,738 50,665 62,909
% growth YoY 27.0% 20.2% 5.5% 13.2% 24.2%EBITDA 5,771 7,943 9,096 10,457 13,646
EBITDA % 16.4% 18.7% 20.3% 20.6% 21.7%
SMR
Revenue 56,652 69,538 90,690 102,939 118,380
% growth YoY 24.6% 22.7% 30.4% 13.5% 15.0%
EBITDA 2,669 4,414 8,815 11,529 13,969
EBITDA % 4.7% 6.3% 9.7% 11.2% 11.8%
SMP
Revenue 45,279 127,848 155,411 176,403 202,863
% growth YoY - 182.4% 21.6% 13.5% 15.0%
EBITDA 891 3,913 7,149 11,466 15,418
EBITDA % 2.0% 3.1% 4.6% 6.5% 7.6%
Others
Revenue 9,802 12,454 12,741 14,652 16,849
% growth YoY 15.2% 27.1% 2.3% 15.0% 15.0%
EBITDA 1,413 3,170 3,722 4,280 4,922
Source : Company, HDFC sec Inst Research
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Consol revenues grew at 63.5% CAGR over FY09-14,
expect it to maintain growth trajectory going forward
EBITDA grew at 54.4% CAGR over FY09-14, sharp growth
expected going forward on SMP/SMR margin expansion
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
Consol APAT grew at 52.8% CAGR over FY09-14, expect
50+% earnings CAGR over FY14-16E
Consol RoCEs at ~20%, expect to expand going forward
with improving earnings
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
26
6782
147
252
304
345
401
0
50
100
150
200
250
300
350
400
450
FY09 FY10 FY11 FY12 FY13 FY14 FY15E F Y16E
in Rs bn
36
911
19
29
38
48
0
10
20
30
40
50
60
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
in Rs bn
11
18
4
8
17
20
2325
0
5
10
15
20
25
30
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
%
1 2
4
1
5
11
16
22
0
5
10
15
20
25
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
in Rs bnin Rs bn
The company achieved USD
5.02bn of consol revenue in
FY14, a year before the
target as per vision 2015
The company boasts of
presence in 25+ countries
with ~84% of consolidated
FY14 sales generated outside
India (target of ~70%)
Strong RoCEs of ~20%,
though management plans
to raise it to 40% by 2015
Dividend Payout Ratio of 48%
(Standalone) and 34%
(Consolidated)
On higher tax rate and
exchange diff on the long
term loans
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Consol rev/APAT has grown at faster CAGR over FY09-
14 than the standalone, driven by inorganic growth
Next leg of revenue growth for the consolidated will be
driven by subs, esp. SMP and SMR
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
Also EBITDA will grow with margin expansion in SMP
and SMR driven by management initiatives
We expect net Debt Equity to improve for MSSL
Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research
0.4x0.5x
2.0x
1.5x
1.0x
0.6x
0.3x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
FY10 FY11 FY12 FY13 FY14 FY15E FY16E
0
5
10
15
20
25
30
35
40
45
50
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
Standalone SMP SMR Others
in Rs bn
63.5
54.4 52.8
28.0
35.1
50.4
0%
10%
20%
30%
40%
50%
60%
70%
Revenues EBITDA APAT
Consolidated Standalone
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
Standalone SMP SMR Others
in Rs bn
MSSL’s consolidated
revenues have grown faster
than the standalone led by
acquisitions across product
range (esp. SMP and SMR)
However weaker margin
structure of the acquisitions
led to comparatively lower
growth in earnings
We expect growth going
forward to be driven by
outperformance of subs. led
by (1) improvement in
margins driven by cost
cutting initiatives (2) increase
in revenues with new
clients/markets (3) moresynergies and in-house
sourcing
Given better cash flows, we
expect consol net
debt/equity to come down in
the near future
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Key earnings trigger
Source : Company, HDFC sec Inst Research
Key triggers
Revenue growth
SMP/SMR entry in newmarkets
Growth inChina/USA/Europe
Standalone growth inIndian markets
Improving margins
Premium vehiclegrowth
Product mix
Capacity utilisation
Debt reduction Better cash flows
We anticipate three key
earnings trigger for MSSL:
(1) strong revenue growth of16/14/14% CAGR for
standalone/SMP/SMR
businesses over FY14-16E
(2) higher margins in the
SMP/SMR businesses led by
favorable product mix, better
capacity utilization and cost
cutting initiatives. We expect
synergies among group firmsto support margin expansion
(3) better cash flows will lead
to improvement in gearing
ratio for the Company
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INCOME STATEMENT
(Rs mn) FY12 FY13 FY14 FY15E FY16E
Net Sales 147,022 252,253 303,580 344,658 401,001
Growth (%) 79.8% 71.6% 20.3% 13.5% 16.3%
Material Expenses 95,434 164,838 193,615 218,605 252,561
Employee Expenses 23,170 42,827 51,065 56,171 62,912
Other Operating Expenses 19,727 29,064 33,749 36,260 41,756
Operating Profits 8,691 15,523 25,151 33,623 43,773
Operating Profit Margin (%) 5.9% 6.2% 8.3% 9.8% 10.9%
Other Operating Income 2,054 3,917 3,631 3,994 4,393
EBIDTA 10,744 19,440 28,781 37,616 48,166
EBIDTA (%) 7.3% 7.7% 9.5% 10.9% 12.0%
EBIDTA Growth (%) -32.8% 5.5% 23.0% 15.1% 10.1%
Other Income 135 170 176 211 254
Depreciation 3,796 7,145 8,172 10,081 11,431EBIT 7,083 12,464 20,786 27,747 36,989
Interest 1,649 2,495 2,944 2,843 2,679
Exchange diff on long term loans 509 1,628 1,880 2,000 2,000
PBT 4,926 8,342 15,961 22,904 32,311
Tax 2,153 3,835 4,995 7,167 10,111
PAT before minority interest 2,773 4,507 10,967 15,737 22,200
Minority Interest (631) 70 3,316 3,481 3,655
Share of profit/(loss) of associates 2 9 (2) - -
EO items (net of tax) 809 - - - -
PAT (reported) 2,596 4,445 7,650 12,256 18,545
APAT 3,406 4,445 7,650 12,256 18,545
APAT Growth (%) -12.9% 30.5% 72.1% 60.2% 51.3%
EPS 3.9 5.0 8.7 13.9 21.0
EPS Growth (%) -12.9% 30.5% 72.1% 60.2% 51.3%
Source: Company, HDFC Sec Inst Research
BALANCE SHEET
(Rs mn) FY12 FY13 FY14 FY15E FY16E
SOURCES OF FUNDS
Share Capital 388 588 882 882 882
Reserves 18,325 22,302 28,711 41,709 60,223
Total Shareholders Funds 18,713 22,890 29,592 42,591 61,105
Share capital suspense account 4 - - - -
Minority Interest 5,027 4,025 7,896 8,686 9,554
Long Term Debt 29,611 27,159 29,834 28,834 27,334
Short Term Debt 11,678 13,553 10,111 9,111 8,111
Total Debt 41,289 40,712 39,946 37,946 35,446
Deferred Taxes 602 559 496 496 496
Long Term Provisions & Others 2,740 4,067 4,126 4,539 4,992
TOTAL SOURCES OF FUNDS 68,375 72,253 82,057 94,258 111,593
APPLICATION OF FUNDSNet Block 46,936 52,774 65,660 70,579 74,148
CWIP 4,444 3,855 - - -
Goodwill - - - - -
Investments, LT Loans & Advs 3,888 3,577 6,224 11,271 16,977
Inventories 22,496 26,036 32,822 37,250 43,312
Debtors 30,127 29,400 32,384 36,752 42,734
Cash & Equivalents 4,557 5,944 9,062 11,147 19,002
ST Loans & Advances, Others 7,210 5,807 6,288 7,136 8,298
Total Current Assets 64,390 67,187 80,555 92,285 113,346
Creditors 30,981 31,808 40,917 46,436 53,993
Other Current Liabilities & Provns 20,302 23,332 29,466 33,441 38,883
Total Current Liabilities 51,283 55,140 70,383 79,877 92,877
Net Current Assets 13,107 12,047 10,173 12,408 20,469
Misc Expenses & Others - - - - -
TOTAL APPLICATION OF FUNDS 68,375 72,253 82,057 94,258 111,593
Source: Company, HDFC Sec Inst Research
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CASH FLOW
(Rs mn) FY12 FY13 FY14 FY15E FY16E
Reported PAT 1,963 4,507 10,967 15,737 22,200
Non-operating & EO items 208 (788) (1,171) (1,229) (1,200)
PAT from Operations 1,756 5,295 12,138 16,966 23,400
Interest expenses 1,649 2,495 2,944 2,843 2,679Depreciation 3,796 7,145 8,172 10,081 11,431
Working Capital Change (4,748) 2,495 2,933 (631) (864)
OPERATING CASH FLOW ( a ) 2,453 17,429 26,186 29,259 36,646
Capex (33,610) (12,394) (17,203) (15,000) (15,000)
Free cash flow (FCF) (31,158) 5,035 8,983 14,259 21,646
Investments & Others 3,092 545 3,280 (3,364) (3,725)
INVESTING CASH FLOW ( b ) (30,518) (11,849) (13,923) (18,364) (18,725)
Debt Issuance 29,866 (577) (766) (2,000) (2,500)
Interest expenses (1,649) (2,495) (2,944) (2,843) (2,679)
FCFE (2,940) 1,964 5,273 9,416 16,467
Share capital Issuance 1,701 1,042 (2,060) - -
Dividend (1,035) (1,376) (2,205) (2,738) (3,687)
FINANCING CASH FLOW ( c ) 28,883 (3,406) (7,975) (7,581) (8,865)
NET CASH FLOW (a+b+c) 817 2,175 4,288 3,314 9,056
Non-operating and EO items 208 (788) (1,171) (1,229) (1,200)
Closing Cash & Equivalents 4,557 5,944 9,062 11,147 19,002
Source: Company, HDFC Sec Inst Research
KEY RATIOS
FY12 FY13 FY14 FY15E FY16E
PROFITABILITY (%)
GPM 36.0 35.7 37.0 37.3 37.7
EBITDA Margin 7.2 7.6 9.4 10.8 11.9
EBIT Margin 4.8 4.9 6.8 8.1 9.2APAT Margin 0.8 1.8 3.6 4.5 5.5
RoE 14.9 21.4 29.2 34.0 35.8
RoIC or Core RoCE 7.5 10.6 21.0 25.9 32.3
RoCE 3.9 8.3 16.8 20.1 23.4
EFFICIENCY
Tax Rate (%) 52.3 46.0 31.3 31.3 31.3
Asset Turnover (x) 3.0 3.6 4.0 4.0 4.0
Inventory (days) 54.3 36.6 38.5 38.5 38.5
Debtors (days) 72.8 41.3 37.9 37.9 37.9
Payables (days) 123.8 77.5 82.5 82.5 82.5
Cash Conversion Cycle (days) 3.2 0.4 (6.1) (6.1) (6.1)
Debt/EBITDA (x) 3.8 2.1 1.4 1.0 0.7
Net D/E 2.0 1.5 1.0 0.6 0.3
Interest Coverage 4.3 5.0 7.1 9.8 13.8
PER SHARE DATA
EPS (Rs/sh) 3.9 5.0 8.7 13.9 21.0
CEPS (Rs/sh) 6.5 13.2 21.7 29.3 38.1
DPS (Rs/sh) 1.2 1.6 2.5 3.1 4.2
BV (Rs/sh) 21.2 26.0 33.6 48.3 69.3VALUATION
P/E 107.0 62.5 36.3 22.7 15.0
P/BV 14.8 12.1 9.4 6.5 4.5
EV/EBITDA 29.3 16.1 10.7 8.1 6.1
OCF/EV (%) 0.8 5.6 8.5 9.6 12.5
FCF/EV (%) (9.9) 1.6 2.9 4.7 7.4
FCFE/mkt cap (%) (1.1) 0.7 1.9 3.4 5.9
Dividend Yield (%) 0.4 0.5 0.8 1.0 1.3
Source: Company, HDFC Sec Inst Research
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BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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