Brokerages repose faith in Motherson Sumi

Analysts once again reiterated their faith on Motherson Sumi Systems (MSSL), which announced strong numbers for the fourth quarter and full-year ended March 2015, last week.

Auto components maker MSSL has reported consolidated net profit of ₹340 crore for the fourth quarter ended March 31, 2015, up 12.41 per cent compared with ₹303 crore in the corresponding period last year.

Revenue also rose more than 12 per cent to ₹9,322 crore during the quarter against ₹8,289 crore in the January-March quarter last year. According to Deutsche Bank, the revenue beat was driven by better-than-expected growth in the global plastics (SMP) and mirrors (SMR) businesses. This reflects the steady execution of new order pipeline which is the key premise for our positive view on the stock. “We maintain our ‘Buy’ rating (target price of ₹530).”

ICICI Securities, which recommended a hold on MSSL, said: “With MSL’s competence on turning around businesses evident with the success of SMR and SMP, we believe the management’s strong focus on RoCE augurs well for the performance in the wake of strong growth potential.”

Mitul Shah of Karvy said: With increasing content per car and value addition to its existing product portfolio, both SMR and SMP have continued to receive new orders. It won new orders of €4.2 billion including €2.2 billion order from Daimler. The company’s 17 new plants would be operational over the next two years.

“Initial ramp-up would be low, but we expect healthy utilisation by FY16-end. Management set very hopeful target of recording $18 billion revenues in 2020 and achieving 40 per cent RoCE. This to our mind is commendable in view of MSSL’s track of exceeding its own targets.

The company’s improving profitability and better asset utilisation will also continue to benefit its return ratios,” Mitul Shah said. Rohan Korde of Prabhudas Lilladher said, Given the company’s track record in terms of accomplishing its published targets, revenue targets seem plausible. However, the nature of possible acquisitions, their profitability and the time required for their turnaround would eventually decide whether the profitability target is met. The new order pipeline remains strong, debt reduction continues and subsidiary profitability is on an upswing. The brokerage firm has recommended a buy rating with a price target of ₹597.

However, Credit Suisse believes street estimates are ‘too high’. Even on a consensus basis, the stock is trading at a 40 per cent premium to peers, said CS, which has initiated covering on MSS with an ‘underperform’ rating and a price target of ₹420.