Sunday, April 4, 2010

MSSL BUY@CMP:Rs124;Target: Rs185

Motherson Sumi Systems Ltd. 

Reco: BUY

CMP: Rs124

Target Price: Rs185

Wiring Success

We like Motherson Sumi (MSSL), a Tier-I supplier (like Bharat Forge,Bosch) for its focus on ROCE rather than margins. MSSL reported a >30% CAGR in sales and EPS during FY96-FY09, without any equity dilution. It acquired SMR (2.7x MSSL's sales) at attractive valuations (0.13x EV/Sales) in Mar'09. We expect MSSL's ROCE to be amongst the best in the auto ancillary industry, given its low cost of acquisition and recovery in global car demand . However, its valuations (FY12E EV/EBIDTA of 5.5x) do not reflect this inherent strength. It trades at a discount of 27% and 54% to its peers like Bharat Forge and Bosch respectively. We expect a re-rating of MSSL as the turnaround of SMR becomes prominent. We recommend a BUY on the stock with a target price of Rs185, valuing the company at 15x PER and 7.7x EV/EBIDTA our FY12 estimates.

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The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
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