Stock Ideas: Prabhudas Lilladher has a buy call on Motherson Sumi, target price Rs 116

Prabhudas Lilladher has given a buy rating to Motherson Sumi Systems with a target price of Rs 116. The share price moved down by -4.82 per cent from its previous close of Rs 103.65. The stock’s last traded price is Rs 98.65.

Simplification of the group structure by consolidating 100 per cent shareholding in Samvardhana Motherson Automotive System Group BV (SMRP BV) under Motherson Sumi Systems paves way for many in-organic opportunities. The company now focuses on diversification of revenue base to 3CX10 strategy (no customer, country and component would account for more than 10 per cent) versus current 3CX15 strategy. The brokerage believes reorganization is a long term positive for Motherson Sumi.

Investment Rationale


The brokerage believes this reorganisation would lead to better value discovery of the global businesses in the long run as currently the brokerage is valuing Motherson Sumi on a consolidated basis. The performance of an existing entity would be judged to its global peers. In the brokerage view, Motherson Sumi remains intact as it believes that with gradual ramp-up of greenfield plants, healthy order book at Eur13.6 billion and start of production with Eur10.1 billion orders, BS6 content increase at S/A bode well for the company. The brokerage maintains a buy rating with a price target of Rs 116 based on 18 times consolidated EPS.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 14870.32 crore, down -3.67 per cent from last quarter sales of Rs 15436.46 crore and down -12.12 per cent from last year's same quarter sales of Rs 16921.40 crore. The company reported net profit after tax of Rs 144.40 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 61.73 per cent stake in the company as of the fourth quarter ending March 31, 2020, while FIIs held 15.50 per cent, DIIs 13.55 per cent and public & others 9.22 per cent.