At Motherson Sumi, growth engine’s running smoothly

ET Intelligence Group: The premium valuation of Motherson Sumi, a leading component supplier to global car makers, is likely to sustain given margin improvement in its overseas subsidiary SMP and a healthy order book of €12.9 billion. The stock has gained 23 per cent in the past three months pushing the FY18 projected price-earnings multiple to 28, which is 40 per cent higher than the 10-year average.

Improvement in SMP’s margin is a major trigger for the higher stock valuation. SMP is the market leader in supplying bumpers, cockpits and interior door panels to premium car makers such as Audi, Porsche and Daimler.



It contributed 52 per cent to the total sales of Motherson Sumi in FY17 and onethird of its operating profits. Its operating margin expanded by 160 basis points year-on-year to 6.8 per cent in the March 2017 quarter, highest since Motherson Sumi acquired the company in 2011. This has made analysts to revise their earnings per share (EPS) target for FY18 by 6-8 per cent.

SMP’s margin expansion was due to a large order from Daimler in 2015 and subsequent ramp-up in new plants. Its revenue grew by 21 per cent in euro terms in the March 2017 quarter compared with 12 per cent in the first nine months of FY17. For the full fiscal, revenue and operating profit grew by 16 per cent and 28.7 per cent, respectively.