 "Motherson basks in glow of foreign subsidiaries")
The Motherson Sumi stock continued to gain, rising four per cent in two trading sessions on the back of improvement in financials of its two major European acquisitions, SMR and SMP, which account for 80 per cent of consolidated revenues.
While overall sales grew 11 per cent, year-on-year (y-o-y), to Rs 7,082 crore, Ebitda margins grew 170 basis points to 8.8 per cent. The company was able to reduce its consolidated net debt on a sequential basis, albeit marginally, by Rs 70 crore to Rs 4,240 crore in the June quarter. Consequently, the consolidated net profit for the June quarter was at Rs 73 crore, compared to Rs 8 crore in the year-ago quarter.
Given the performance, analysts at JM Financial believe that return ratios are likely to improve significantly going forward, helped by healthy performance, strong cash flows and healthier balance sheet. Operational improvements, especially in the overseas subsidiaries, as well as attractive valuations could see the stock being re-rated. Says UBS analyst Ruchi Vora, “A 40 per cent annual earnings per share growth through FY13-15, expected balance-sheet de-levering, attractive valuations of 10 times its estimated FY15 earnings and a muted share price performance over last six months supports potential for favourable share price performance.” Twenty-five out of 26 analysts tracking the stock, according to Bloomberg, have a ‘buy’ on the company with a consensus target price of Rs 248.50.
Overseas subsidiaries shine
Its two key subsidiaries -- SMR, which manufactures rear-view mirrors, and Peguform, which is into plastic components, continued to improve their financials. SMR reported a revenue growth of 28 per cent, y-o-y, driven by 73 per cent increase in US revenues. Ebidta margins were up 360 basis points to 8.6 per cent on the back of increase in new plants and capacity utilisation in its Hungary plant to 50 per cent from 30 per cent in the year-ago quarter. Given that the US truck market is expected to post healthy growth in the second half of the current year, analysts expect the sales trend to continue.
While Peguform’s revenues grew four per cent, y-o-y, its margins came in at 5.5 per cent higher than the analysts expectations around the 4-4.5 per cent mark driven by higher utilisation and cost cutting at its loss-making plants. Going ahead, Kotak analysts Hitesh Goel and Vinay Kumar say that the company will improve profitability at Peguform by reducing overhead costs in two German plants, full ramp-up of plants in Europe and new business wins from Volkswagen. The business, which is loss-making at the net level, is expected to turn around in FY14.
Revenue growth for Indian business, which largely caters to the auto industry, has been marginal due to the tough macroeconomic conditions and the sluggish growth of its customers. Sales growth of two per cent, y-o-y, was largely led by exports which grew 22 per cent over the year ago period. The firm exports wiring harnesses to group companies in Europe, its partner Sumitomo and customers in the commercial vehicle segment.
Ebidta margins were up by 328 basis points to 18.4 per cent on the back of lower raw material costs and other expenses. The company management says that although its customers are going through a tough phase, it has managed to grow faster than the sector with a focus on increasing its share of content per car. Margins, according to the management, are growing on the back of cost cutting and increasing operational efficiencies in the system.
While domestic growth numbers for the last couple of quarters of the company have been falling (20 per cent growth in FY13, 10 per cent growth in the second half of FY13), Kotak analysts say the same is likely to improve over the next few years on higher passenger car production and shift of customers to higher priced cars.
While overall sales grew 11 per cent, year-on-year (y-o-y), to Rs 7,082 crore, Ebitda margins grew 170 basis points to 8.8 per cent. The company was able to reduce its consolidated net debt on a sequential basis, albeit marginally, by Rs 70 crore to Rs 4,240 crore in the June quarter. Consequently, the consolidated net profit for the June quarter was at Rs 73 crore, compared to Rs 8 crore in the year-ago quarter.
Given the performance, analysts at JM Financial believe that return ratios are likely to improve significantly going forward, helped by healthy performance, strong cash flows and healthier balance sheet. Operational improvements, especially in the overseas subsidiaries, as well as attractive valuations could see the stock being re-rated. Says UBS analyst Ruchi Vora, “A 40 per cent annual earnings per share growth through FY13-15, expected balance-sheet de-levering, attractive valuations of 10 times its estimated FY15 earnings and a muted share price performance over last six months supports potential for favourable share price performance.” Twenty-five out of 26 analysts tracking the stock, according to Bloomberg, have a ‘buy’ on the company with a consensus target price of Rs 248.50.
Overseas subsidiaries shine
Its two key subsidiaries -- SMR, which manufactures rear-view mirrors, and Peguform, which is into plastic components, continued to improve their financials. SMR reported a revenue growth of 28 per cent, y-o-y, driven by 73 per cent increase in US revenues. Ebidta margins were up 360 basis points to 8.6 per cent on the back of increase in new plants and capacity utilisation in its Hungary plant to 50 per cent from 30 per cent in the year-ago quarter. Given that the US truck market is expected to post healthy growth in the second half of the current year, analysts expect the sales trend to continue.
While Peguform’s revenues grew four per cent, y-o-y, its margins came in at 5.5 per cent higher than the analysts expectations around the 4-4.5 per cent mark driven by higher utilisation and cost cutting at its loss-making plants. Going ahead, Kotak analysts Hitesh Goel and Vinay Kumar say that the company will improve profitability at Peguform by reducing overhead costs in two German plants, full ramp-up of plants in Europe and new business wins from Volkswagen. The business, which is loss-making at the net level, is expected to turn around in FY14.
Revenue growth for Indian business, which largely caters to the auto industry, has been marginal due to the tough macroeconomic conditions and the sluggish growth of its customers. Sales growth of two per cent, y-o-y, was largely led by exports which grew 22 per cent over the year ago period. The firm exports wiring harnesses to group companies in Europe, its partner Sumitomo and customers in the commercial vehicle segment.
Ebidta margins were up by 328 basis points to 18.4 per cent on the back of lower raw material costs and other expenses. The company management says that although its customers are going through a tough phase, it has managed to grow faster than the sector with a focus on increasing its share of content per car. Margins, according to the management, are growing on the back of cost cutting and increasing operational efficiencies in the system.
While domestic growth numbers for the last couple of quarters of the company have been falling (20 per cent growth in FY13, 10 per cent growth in the second half of FY13), Kotak analysts say the same is likely to improve over the next few years on higher passenger car production and shift of customers to higher priced cars.