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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