Automobile parts maker Motherson Sumi’s earnings for the quarter ended March were again boosted by the strong performance of its two foreign subsidiaries, SMR and SMP. The subsidiaries, which account for 84 per cent of the company’s revenue, helped Motherson Sumi’s revenue rise 25 per cent year-on-year to Rs 8,406 crore.
The company said together, the two subsidiaries had received orders worth Euro 4 billion, adding the execution of these would begin in the second half of this financial year. With these, the company’s unexecuted order book stands at Euro 10 billion, spread through the next five years.
On Tuesday, the company announced the acquisition of US-based Stoneridge’s wiring harness business for $65.7 million. This business has six plants in Mexico and the US, with revenue of $300 million. Analysts say the valuations are reasonable, considering the earnings before interest, tax, depreciation and amortisation margin of five times; they expect Motherson to improve the margins of the acquired entity, currently below five per cent.
Analysts continue to be bullish on the stock. They feel the strong order book of the two subsidiaries, along with a revival in demand for passenger vehicles in India, will boost revenue and profitability. The company has estimated 25 per cent revenue growth for FY15 and intends to raise the return on capital employed from the current 31 per cent to 40 per cent.
Of the 32 analysts tracking the company, 27 have a ‘buy’ rating on the stock, four ‘hold’ and one ‘sell’. The one-year forward consensus target price is Rs 324, an upside of 13 per cent against current levels.
For the March quarter, revenue gains were led by the strong performance of SMR, whose sales rose 12 per cent (in euro terms). The company also benefited from translation gains in the case of both the subsidiaries. This was amid improving capacity utilisation at SMR’s Hungary plant. SMP’s performance was, however, sub-par, with falling operating profit margins on a sequential basis, owing to high costs of parts and the ramp-up of a new plant in Germany. At Rs 232 crore, the company’s adjusted net profit rose 45 per cent compared to the year-ago period, in line with expectations.
The company has also improved its debt position, reducing overall debt by Rs 500 crore to Rs 3,500 crore, against the estimated Rs 3,800 crore.
For the March quarter, revenue growth for the India entity was, however, muted, with year-on-year growth of just 1.5 per cent (Rs 1,223 crore), largely driven by 28.5 per cent growth in exports.
A part of these sales were to its subsidiaries, while the rest were accounted for by its customer base.
For FY14, the company reported growth of 3.3 per cent year-on-year (Rs 4,474 crore) in revenue. Given the four per cent year-on-year decline in domestic passenger vehicle production, this indicates the company continues to increase its content per car, say analysts at Kotak Institutional Equities. Given the muted revenue growth for the quarter, operating profit for the standalone business was way below the estimate (Rs 295 crore).
