 "Motherson Sumi: Outlook bright on robust order book")
After touching its 52-week high in early morning trade on Friday, the stock of auto parts maker Motherson Sumi Systems fell 2.5% post the announcement of its September quarter results.
Consolidated net profit at Rs 140 crore, which was up just a per cent over the year ago quarter, was below analyst expectations of Rs 180 crore.
Analysts believe that there could have been some profit booking given 40% gains since September of which 15% came in over the last month.
Consolidated net profit at Rs 140 crore, which was up just a per cent over the year ago quarter, was below analyst expectations of Rs 180 crore.
Analysts believe that there could have been some profit booking given 40% gains since September of which 15% came in over the last month.
However, adjusted for forex losses of Rs 113 crore as compared to gain of Rs 84 crore in the September quarter last year, net profit for the quarter would have been Rs 253 crore. This is against the year ago adjusted number (for one-off items) of about Rs 94 crore. Analysts say the company has turned out another good set of numbers on revenues and Ebidta fronts and with an order book of over 4 billion euros to be executed over the next five-six years, its outlook and prospects are bright.
Espirito Santo analysts, Nitesh Sharma, Aditya Jhawar and Nick Paulson-Ellis, in a post results note said that the beat primarily came from the standalone division, which surprised them and the Street by posting a 21.8% margin (Espirito's estimate was 18%) and 14% revenue growth year-on-year (against estimate of 5%). "We roll forward our valuation to FY2014E and increase our FY14E and FY15E earnings by 8% and 13%, primarily led by improvement in SMR’s and SMP’s margin profile over the last two quarters. Moreover, post the con-call with Faurecia held for our clients, our confidence in SMR and SMP achieving double-digit margins has increased substantially as they start executing new orders. Reiterate BUY with an Fair Value of Rs 347 (Rs 276 previously)," they said. SMR and SMP are Motherson Sumi's two subsidiaries which together account for 80% of the consolidated revenues.
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The top line at the consolidated level saw a jump of 23% largely on the back of a strong show from these two overseas subsidiaries. While SMR, which makes rear view mirrors for luxury car makers such as BMW and Audi, saw its sales improve 34% to Rs 2,126 crore, SMP, which manufactures plastic parts, grew 22% to Rs 3,605 crore, compared to the year ago period. Despite the slowdown in the domestic auto space, the Indian operations registered year-on-year growth of 16% to Rs 1,102 crore.
While revenue growth has been strong, the company's Ebidta growth has been sharper at 76% brought on by lower raw material costs as a percentage of sales falling by 244 basis points to 63% for the quarter ending September 2013. The company management has indicated that higher efficiencies and exports from India also helped improve margins with the company benefitting from a weaker rupee.
Coupled with this the management also indicated that improving product mix has also helped the company to achieve better Ebidta margins. The company believes that margins at 9.6% (and especially at its overseas subsidiaries) are sustainable and can be improved going ahead. While India business margins are at 21%, margins for SMR and SMP are at 8.8 and 6% respectively with the latter yet to turn in a profit and the net level.
On Monday, Motherson's stock jumped 3.5% to Rs 275 verus a 0.7% fall in Sensex. As per Bloomberg, seven of the eight analysts (excluding Espirito) polled post-results have a "buy/accumulate/outperform/overweight" rating on the stock with an average target price of Rs 306, indicating potential upside of 11%.