Motherson Sumi - HDFC Securities

Transcription

INITIATING COVERAGE
23 JUN 2014
Motherson Sumi Ltd.
BUY
INDUSTRY
AUTOS
Expanding expertise
CMP (as on 20 Jun 2014)
Rs 315
Target Price
Rs 373
FIIs
16.91
Motherson Sumi (MSSL) is a highly capable and
focussed auto ancillary catering to Indian as well as
global OEMs. Starting with wiring harness systems,
MSSL has acquired and mastered businesses in
several new domains globally. With steadily
increasing
content
per
car
(with
new
products/assemblies), deal wins in local/global
markets and strategic acquisitions, we think MSSL
can drive 50+% earnings growth (consolidated) over
FY14-16E with rising return ratios and profit margins.
While standalone business will be a steady
contributor to consol earnings, we expect the share
of subsidiaries (SMP/SMR) to significantly increase
with (1) expansion in China/US/Europe, especially in
the premium segment (2) turnaround of loss making
plants driven by cost cutting, order wins and rising
capacity utilization (3) synergies with group
companies (5) new client acquisitions and deal wins
across markets.
At CMP, MSSL trades at 22.7/15x FY15/16E consol
EPS. Initiate with a BUY; our SOTP is Rs 373/sh.
Public & Others
10.07

Nifty
7,511
Sensex
25,106
KEY STOCK DATA
Bloomberg
MSS IN
No. of Shares (mn)
882
MCap (Rs bn) / ($ mn)
275/4,569
6m avg traded value (Rs mn)
350
STOCK PERFORMANCE (%)
52 Week high / low
Rs 327/123
3M
6M
12M
Absolute (%)
41.8
55.6
128.6
Relative (%)
26.3
36.5
94.5
SHAREHOLDING PATTERN (%)
Promoters
FIs & Local MFs
65.59
7.43
Source : BSE

Sorabh Talwar
sorabh.talwar@hdfcsec.com
+91-22-6171 7321
Ancillary turnaround specialist : MSSL commands a
strong reputation for acquiring and turning around
troubled ancillaries on the request of OEMs. The
company has often contributed in making vendor
chains more efficient for OEMs by acquiring weaker
ancillary units and turning them around.
Two key global subs to drive earnings growth : With
its proven track record Motherson hopes to further
drive the now visible turnaround at SMR and SMP
(both subs have reported higher margins in 4QFY14 ).
We model 16/14/14% revenue CAGR over FY14-16E for
standalone/SMP/SMR businesses and a progressively
disproportionate share of profits kicking in from
SMR/SMP (see inside).

Growth in premium vehicles to benefit MSSL : Order
intake for MSSL/SMR/SMP has increased led by growth
in the premium segment. Favorable product mix
(higher realization, higher margins) adds value to the
company’s operations. Increasing content/car will be a
key earnings driver.

China/US/Europe demand key to growth : We expect
improving macros to drive global auto sales. MSSL gets
~54% of consolidated revenues from Europe, while
India contributes ~15%, China ~9% and RoW ~22%. We
expect MSSL’s growing focus in China & US, especially
in the premium segment to drive earnings in the near
future. We also highlight MSSL’s endeavor to reduce its
dependence to not more than 15% of revenues from a
single customer, single country or a single commodity,
a step towards de-risking revenues.
CONSOLIDATED FINANCIAL SUMMARY
(Rs mn)
Net Sales
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)
FY12
147,022
10,744
3,406
3.9
107.0
29.3
14.9
FY13
FY14 FY15E
252,253 303,580 344,658
19,440 28,781 37,616
4,445
7,650 12,256
5.0
8.7
13.9
62.5
36.3
22.7
16.1
10.7
8.1
21.4
29.2
34.0
FY16E
401,001
48,166
18,545
21.0
15.0
6.1
35.8
Source: Company, HDFC sec Inst Research
HDFC Securities Institutional Research is also available on Bloomberg HSLB <GO>
MOTHERSON SUMI : INITIATING COVERAGE
Performance at a glance
350
Motherson Sumi Systems Ltd.
has delivered consistent
growth with a CAGR of ~40%
since 1993
Consol Rev (in Rs bn)
FY2010 Target
of USD 1bn
304
Achieved
USD 1.5bn
300
252
250
Till 2005, company recorded
revenue CAGR of ~35%, while
consolidating its presence in
the domestic as well as
global markets
200
147
150
100
FY06-10 saw the sharpest
revenue CAGR for the
company at ~60% led by
global expansion and
diversification
82
67
2002-03
2003-04
2004-05
20
2007-08
6
15
2006-07
4
10
2005-06
0.2 0.3 0.6 1.0 1.1 1.1 1.2 1.5 2.3 3.0
8
1992-93
50
26
Consolidate India presence
Consolidate &
enhance Global
Capabilities
Global expansion
& product
diversification
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
MSSL has grown faster than
the market by consistently
increasing its customer base
and the content per car
1993-94
0
Gain firm
foothold as a
Global supplier
Source : Company
Page | 2
Exceeding market performance
Motherson Sumi
Sensex
Jun-14
Jun-14
May-14
Apr-14
May-14
Apr-14
Mar-14
Feb-14
Mar-14
Feb-14
Jan-14
Jan-14
Jan-14
Dec-13
Dec-13
Nov-13
Nov-13
Oct-13
Oct-13
Sep-13
Sep-13
Aug-13
Aug-13
Aug-13
Jul-13
Jul-13
Jun-13
250
230
210
190
170
150
130
110
90
70
Source : Company, HDFC sec Inst Research
Corporate actions
1993-94
Public Issue
1995-96
Rights Issue
1997-98
Bonus Issue (1:2)
2000-01
Bonus Issue (1:2)
2002-03
Share split : Face value changed to Rs 5 (2:1)
2003-04
Share split : Face value changed to Rs 1 (5:1)
2004-05
Bonus Issue (1:2)
2005-06
Convertible Bonds (FCCB)
2007-08
Bonus Issue (1:2)
2011-12
Shares issued to shareholders of erstwhile SMIEL
2012-13
Bonus Issue (1:2)
Page | 3
Samvardhana Motherson Group (SMG)
Consolidated revenue of USD
5.02bn in FY14, a year ahead
of target (Vision 2015)
Geographic spread allows
flexibility of catering to
customer’s requirement
using best suited logistics
model
Strong synergies across
companies within the group
a key positive for margins
expansion
Rising content per vehicle led
by organic as well as
inorganic expansion earnings
accretive for the company

A diversified group: Samvardhana Motherson Group
(SMG) is a focused, dynamic and progressive global
group with presence in 25+ countries and a
consolidated turnover of USD 5.02bn in FY14.

A globally preferred solution provider: As a full system
solutions provider, SMG offers comprehensive product
range and technical solutions spanning applications
across diverse verticals and industries.

Key entity: Motherson Sumi Systems Ltd. (MSSL), the
flagship company of the Samvardhana Motherson
Group (SMG) is a joint venture between Samvardhana
Motherson International Ltd. (SMIL) and Sumitomo
Wiring Systems, Japan (SWS).

Higher wallet share: The group has been continuously
expanding verticals and product portfolio to capture
higher wallet-share of auto manufacturers.

Synergies within group: Strong synergies across
companies within the group, leveraged with a capable
management at the top, helps turning around newer
acquisitions quicker : a key advantage for the company.

Quick expansion: The group has expanded organically
as well as inorganically in recent years. Access to new
products & technology and expansion in newer
markets/clients remain the underlying driving factor in
company’s growth trajectory.

Wide customer base: Leveraging on strong technical
infrastructure and manufacturing capabilities, company
positions itself as a full system solution provider to its
customers across geographies building a strong
competitive edge and making it the supplier of choice.

Diverse geographies: MSSL’s geographic spread (125
plants across 25 locations) allows it the flexibility of
supplying to customers using best suited logistic
models. Company’s manufacturing facilities are
present across Asia, Europe, North America, South
America, Australia and Africa.

Range of products: MSSL boasts of a wide range of
products which includes rearview mirrors, wiring
harnesses, moulded plastic parts, complete modules
including bumpers, dashboards, door trims, air fiIter
systems, HVAC systems, rubber components for
automotive and industrial applications, high precision
machined metal parts and injection moulding hubs.

Managing Relationships: The Company has evolved on
the strength of its relationship with all its stakeholders,
a relationship of mutual trust & respect, growing
steadily across the product range and markets.
Page | 4
Industry position
Benefiting with increased OEM sourcing
Source : Company
Source : Company
MSSL boasts of significance
presence in the wiring
harness, mirrors and IP
modules across all global
markets
Rearview mirrors (~28%) is
the largest contributor to the
consol. revenues followed by
Interior modules (22%) and
wiring harnesses (18%)
Business portfolio
Metal Others
working 2%
1%
MSSL is working towards
reducing dependence to not
more than 15% of revenues
from a single customer,
single country or a single
commodity –a step towards
de-risking revenues
Polymer &
tooling
11%
Customer wise sales
IT & Design
1%
Rearview
Mirrors
28%
Exterior
modules
17%
Wiring
harness
18%
Audi
20%
Others
26%
VW
19%
Ford
5%
Interior
modules
22%
Maruti
Suzuki Renault
5% Nissan
Hyundai
6%
6%
Seat
6%
BMW
7%
Page | 5
Group structure
Source : Company
Page | 6
Motherson Sumi Systems Ltd : A One-stop Solution
Key business highlights :

- one of the largest
manufacturer of rearview
mirrors for passenger cars in
the world
- India’s largest
manufacturer of automotive
wiring harness and mirrors
for passenger cars

- one of the largest
manufacturers of IP modules,
door trims and bumpers for
mainly European OEMs
- a leading supplier of plastic
components and modules to
the global automotive
industry

Motherson Sumi Systems Ltd. (MSSL) is the flagship
company of the Samvardhana Motherson Group.
MSSL, incorporated in 1986 (listed on exchanges in
1993), is a JV between Samvardhana Motherson
International Ltd. (SMIL) and Sumitomo Wiring Systems
Ltd., Japan (SWS). MSSL has grown into a diversified
manufacturer of automotive components with market
leading position in its major product verticals.
Currently MSSL is (1) one of the largest manufacturer
of rearview mirrors for passenger cars in the world (2)
India’s largest manufacturer of automotive wiring
harness and mirrors for passenger cars (3) one of the
largest manufacturers of IP modules, door trims and
bumpers for mainly European OEMs, and (4) a leading
supplier of plastic components and modules to the
global automotive industry.
Product range: Rearview mirrors, wiring harnesses,
moulded plastic parts, complete modules including
bumpers, dashboards, door trims, air filter systems,
HVAC systems, rubber components for automotive and
industrial applications, high precision machined metal
parts and injection moulding tools.

Manufacturing: The Company boasts of a vast
geographical spread with manufacturing presence
across Asia, Europe, North America, South America,
Australia and Africa. This allows MSSL the flexibility to
supply to its customers from various manufacturing
locations using the best suited logistics model.

A Joint venture specialist: MSSL’s strength in
partnering growth has evolved with a number of JVs
for diversified product range. The JVs of MSSL has
helped it to enhance capabilities ranging from adding
new products to bringing new and customized
technologies to customers. Vertical integration and inhouse sourcing has further helped in enhancing the
product range and delivering the quality while reducing
costs for the company.
Page | 7
Standalone revenues grew at 28% CAGR over FY09-14
~86% of the standalone
revenues come from India
sales while rest is from
outside India
50
in Rs bn
40
Within India
45.5
43.2
45
50
45
40
35
30
25
20
15
10
5
0
35.9
35
28.6
30
25
17.6
20
Standalone revenues have
grown led by (1) growth in
the domestic auto industry
(2) rising content/vehicle
with new products (3) better
realizations given growing
sales of mid-higher range
models
Standalone APAT has
registered a 50.4% CAGR
over FY09-14, while EBITDA
registered a 35.1% CAGR
15
13.2
10
5
0
FY09
FY10
FY11
FY12
Standalone business has shown strong traction in the
India as well as outside India revenues
FY13
in Rs bn
FY09
FY14
Outside India
FY10
FY11
FY12
FY13
FY14
Within India (Standalone) revenues grew at 29.4% CAGR
over FY09-14…
…while outside India (Standalone) revenues grew at
22.3% CAGR
Within India
Outside India
% growth
% growth
80%
8
35
70%
7
30
60%
6
25
50%
5
60%
20
40%
4
40%
15
30%
3
10
20%
2
5
10%
1
0%
0
0%
0
-20%
40
in Rs bn
FY09
FY10
FY11
FY12
FY13
FY14
100%
in Rs bn
80%
20%
FY09
FY10
FY11
FY12
FY13
FY14
Page | 8
Wiring harness (standalone)
within India
Wiring harness (~75% of
standalone revenues) posted
a ~30% CAGR over FY09-14,
primarily in the India
business
40
Polymer components (standalone)
Outside India
in Rs bn
35
30
70%
12
60%
10
50%
25
The company has managed
to deliver steady margins at
~20% over the years
70%
in Rs bn
60%
50%
8
40%
30%
30%
20%
10
5
0
FY09
FY10
FY11
FY12
FY13
4
10%
2
0%
0
20%
10%
0%
FY09
FY14
FY10
FY11
FY12
FY13
Rubber/metal machined & other products (Standalone)
EBITDA margins maintained at ~20%
within India
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0.0
% growth
6
15
Rubber/metal machined &
other products grew at 20%
CAGR
Outside India
40%
20
Polymer components (the
second largest revenue
contributor) grew at ~28%
CAGR over FY09-14
within India
% growth
Outside India
% growth
140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
in Rs bn
FY09
FY10
FY11
FY12
FY13
FY14
Standalone EBITDA
10
9
8
7
6
5
4
3
2
1
0
FY14
EBITDA margin (%)
25%
in Rs bn
20%
15%
10%
5%
0%
FY09
FY10
FY11
FY12
FY13
FY14
Page | 9
Samvardhana Motherson Reflectec (SMR)
New orders worth Euro 1.56bn
in FY14
SMR commands ~22% global
market share in the passenger
cars and commercial vehicles
rear view mirrors
Presently SMR is focusing on
China & USA, two of the
largest and strongest growing
automotive markets, to
expand revenues
MSSL acquired SMR in 2009
on recommendation from its
clients and has a 47.7%
controlling stake in SMR
SMR has improved margins
~300bps to 9.7% in FY14. We
expect SMR to deliver EBITDA
margins of 11/11.8% in
FY15/16E


Background : Samvardhana Motherson Reflectec
(SMR), acquired by MSSL in 2009, is a Germany
headquartered rearview mirror specialist and develops
& produces exterior mirrors for passenger cars and
commercial vehicles (including heavy trucks). SMR is
also an expert for camera based sensing system in the
automotive industry.
Global customer base : SMR’s global base includes all
major car makers in North America, South America,
Europe, Asia and Australia. The company boasts of a
global market share of ~22% in passenger cars and
commercial vehicles rear view mirrors.

Vast product range : Exterior mirrors are the
Company’s largest product segment. SMR’s plants,
spread across the globe, are specialized in polymer
processing, manufacturing of electronic and electromechanical systems, glass processing, automated
painting and the assembly of complete systems. SMR is
also specialized in process to build sub-assemblies
integrated in exterior mirrors.

Global manufacturing base : SMR has been expanding
manufacturing base worldwide (through green-field as
well as brown-field expansion) to meet the growing
requirements of its global consumers. After expanding
footprint in Thailand & Brazil with new green-field
plants, and capacity expansion in Hungary, Spain and
Mexico over FY11-13, the company is focusing on
China & USA, two of the largest and strongest
growing automotive markets.

History : Visiocorp group (originally named
Schefenacker) had a turnover of EUR ~660mn in 2008
supplying to all major OEMs worldwide. MSSL acquired
Visiocorp for a cash consideration of EUR 25mn and
allotment of 5% shares having face value of EUR 1.5mn
with no additional debt in 2009. MSSL has a 47.7%
controlling stake in SMR (93.6% along with SMIL).

Synergies post acquisition : Post becoming a part of
Samvardhana Motherson Group in 2009, SMR has
benefited immensely with the inherent synergies of
the group (1) in-Sourcing from the group companies
(2) sharing of worldwide network of marketing and
project management centres.

SMR has delivered a revenue growth of 26% CAGR
over FY11-14, while the margins have improved
~300bps to 9.7% in FY14 (10.6% in 4QFY14,
substantial improvement from 4.6% in 3QFY12).

Margin improvement is driven by (1) strong order flow
from the European OEMs (especially in the premium
segment from the likes of Audi, BMW & Mercedes)
(2) cost cutting initiatives (3) synergy benefits with
group companies. We expect SMR to deliver EBITDA
margins of 11/11.8% in FY15/16E. New orders worth
EUR 4+bn, since its acquisition by MSSL, have helped
SMR grow stronger and faster than peers.

Balanced global presence : With its broadened
positioning in both mature and emerging markets, SMR
has a more balanced global presence, making the
company more independent from the economic
development in individual markets and a global partner
for the automobile companies. This has enabled the
company to outperform the market.

USA : SMR has expanded capacity to ~2x with the new
plant in Michigan, commercial production is expected
to commence by FY15. New orders in USA are expected
to increase utilization of additional capacities in
Michigan and lift market shares in the North America
significantly within next 3-4 years.
Page | 10

SMR is strongly positioning
itself as a preferred partner
for all automakers world-wide
Growth in China and higher
utilization across are key to
margins expansion for SMR

China : China currently contributes ~10% of SMR’s
revenue. SMR has a 50:50 JV with Ningbo Huaxang
group (formed in 2007) in China. We expect
contribution from China (higher growth, higher
margins) to improve with the commencement of two
new plants. SMR targets ~25% market share in China
by FY17 (~10% currently). New plants in Chongquing
(Central China), Langfong (Beijing) and Yancheng will
provide excess capacities and higher vertical
integration, leading to better margins and higher
market share for the company.
Europe : Europe currently contributes ~46% of SMR’s
revenue. We expect higher growth in Europe given
better macros and demand revival. Better utilization at
plants and in-sourcing within group will lead to margin
expansion for the company going forward.

Key plans : SMR is strongly positioning itself as a
preferred partner for automakers world-wide and
increasing scope of business. It is among the leading
suppliers of exterior mirrors in regions where it has a
long presence, while further targeting to reach similar
high market share levels in those markets in which it
has entered within the last decade.

We expect SMR revenues to grow at 14% CAGR over
FY14-16E, while margins to expand from 9.7% in FY14
to 11/11.8% in FY15/16E.
Page | 11
SMP : revenues grew at ~30% YoY in recent quarters…
Revenues Rs bn
30
…with EBITDA margins steadily expanding
YoY Growth
in Rs bn
EBITDA Rs bn
40%
35%
25
3.0
Margin %
in Rs bn
12%
2.5
10%
25%
2.0
8%
20%
1.5
6%
1.0
4%
5%
0.5
2%
0%
0.0
0%
4QFY14
3QFY14
3QFY12
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
0
2QFY14
5
1QFY14
10%
4QFY13
10
3QFY13
15%
2QFY13
15
1QFY13
20
4QFY12
30%
Strong revenue growth trend expected to continue
EBITDA margins to inch towards ~12% by FY16E
Revenue
EBITDA
% growth
35%
16
120
30%
14
100
25%
140
in Rs bn
60
15%
40
10%
4
20
5%
2
0%
0
FY12
FY13
FY14
FY15E
FY16E
12%
10%
10
20%
FY11
14%
in Rs bn
12
80
0
EBITDA (%)
8%
8
6%
6
4%
2%
0%
FY11
FY12
FY13
FY14
FY15E
FY16E
Page | 12
Samvardhana Motherson Peguform (SMP)
New orders worth Euro
2.44bn in FY14
MSSL acquired 83.7% stake
(along with SMIL) in
Peguform GmbH (Germany)
for EUR 141.5mn in 2011

Peguform GmbH (Germany), a global Tier-1 supplier of
polymer based automotive modules (like bumpers,
instrument panel, door trims, etc.), was acquired by
MSSL (along with SMIL, 83.7% stake) in Nov-2011 and
renamed as SMP (Samvardhana Motherson
Peguform). MSSL (directly) has a 51% stake in SMP.

The key to SMP’s earnings growth will be turn around
in the current loss making plants led by (1) better
order inflow (2) synergies in sourcing with the group
companies, and (3) cost cutting initiatives. SMP’s Brazil
plant turned profitable last year (from a EUR70m loss
in FY13) led by better prices and improved utilisation.

SMP supplies primarily to the European OEMs (likes of
VW, Audi, BMW, Porsche, Daimler and Renault-Nissan)
with manufacturing plants in Europe, China, Mexico &
Brazil. Peguform was acquired for EUR 141.5mn
(turnover of EUR 1.67bn in 2011), attractively priced.


SMP is MSSL’s largest subsidiary and one of the largest
manufacturers of bumpers, rocker panels, instrument
panels, interior door panels and other related products
for the European automotive industry. With numerous
patented technologies and industry first innovations in
all product lines, it is one of the most preferred
suppliers for car makers in Europe as well as to their
facilities in China, Brazil and Mexico.
China : China currently contributes ~12% of SMP’s
revenue. SMP is present in China via a 51:49 JV with
Changshu Automotive Trim Co. (CAIP). We expect
contribution from China (higher growth, higher
margins market) to improve with the commencement
of new plants. Due to strong increase in demands for
high quality products from SMP across China, the
company is currently investing in the establishment of
two new factories in Foshan (South China) & Beijing,
scheduled to commence production in 2014. VW
(including Audi) currently contributes ~95% of SMP’s
revenues in China. With supplies commencing to BMW
and Daimler, we expect revenue/margins to improve.

SMP’s major customers include Audi, BMW, Daimler,
GM, Porsche, Renault/Nissan, Seat, Volkswagen, etc.


Geographical expansion : SMP was established in
Germany where most of its products are still produced
and assembled. SMP has continuously expanded
globally, setting up new operations across Europe,
Mexico, Brazil and China to support its customers
across the globe. Spain and Portugal were the first
markets outside Germany followed by Eastern Europe.
SMP with an objective to be located near its customers
established its high volume factories in Mexico and
Brazil in 1996. In early 2013 SMP opened a Greenfield
factory in Pubela, Mexico which replaced the two
existing smaller plants in the region. China is the
strongest growing region in the automotive industry
and the youngest market for SMP.
Europe : Europe currently contributes ~80% of SMP’s
revenue. We expect improved macros, better
utilization at plants and in-sourcing within group to
drive earnings for the company going forward.

Synergy with Group : SMP’s capabilities of production
and assembly of highly complex and large modules as
well as its extraordinary technological expertise in
multiple polymers and surface shining enhances the
Group’s positioning as a global full system solutions
provider. SMP has an established international
customer base and manufacturing locations around the
world. Further SMP gives the Group access to
advanced production technologies. MSSL is leveraging
on the horizontal and vertical integration of SMP’s
operations and products. The objective is to expand
the group’s business based on the combined customer
base and geographical footprint significantly and to
SMP is MSSL’s largest
subsidiary and one of the
largest manufacturers of
bumpers, focussed on the
European manufacturers
The key to SMP’s earnings
growth will be turn around in
the loss making plants
Page | 13
benefit from best skilled and most cost competitive
production and development resources within the
group.
3.0
Margin %
in Rs bn
7%
6%
2.5
5%
2.0
4%
1.5
3%
1.0
2%
1%
0.5
0%
Revenue growth of ~14% expected going forward
Margins inching towards ~7% by FY16E
Revenue
250
% growth
EBITDA
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
in Rs bn
200
150
100
50
0
FY12
FY13
FY14
FY15E
FY16E
18
4QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
(0.5)
1QFY13
0.0
4QFY12
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
1QFY13
4QFY12
EBITDA Rs bn
YoY Growth
in Rs bn
3QFY12
45
40
35
30
25
20
15
10
5
0
Margins improved substantially post acquisition
3QFY12
Revenues Rs bn
We expect SMP revenues to grow at 14% CAGR over
FY14-16E, while margins to expand from 4.6% in FY14
to 6.5/7.3% in FY15/16E.
3QFY14
SMP : strong growth visible in recent quarters

-1%
-2%
EBITDA (%)
8%
in Rs bn
16
7%
14
6%
12
5%
10
4%
8
3%
6
4
2%
2
1%
0
0%
FY12
FY13
FY14
FY15E
FY16E
Page | 14
New Acquisition : Wiring Harness business of Stoneridge Inc.

Business History : Stoneridge Inc. has a history of 48+
years of wiring harness manufacturing. The Company
also manufactures instrument panels for CVs.

Key clients for the company includes commercial
vehicle manufacturers, agricultural equipment,
material handling equipment and off-highway vehicle
manufacturers. This gels well with MSSL’s key
customer profile. As per agreement with SWS, MSSL
refrains from catering to passenger cars globally
(except in India) while focus on other segments.

We believe the acquisition offers strong synergies in
terms of customer segments, products and global
operations with MSSL’s core business.

Manufacturing facilities include 6 plants located in
Portland, Indiana (USA) and five locations in Mexico
Chihuahua, Saltillo & Monclova. Engineering and
administrative center is located in Warren, Ohio (USA).

Revenue approx USD 300mn, as per company.

Consideration to be paid : USD 65.7mn (fairly
attractive), Structure : Asset purchase. The acquisition
is expected to be completed by 3QFY14.

We believe this acquisition will help MSSL expand its
wiring harness global business in North America
immensely, catering to the commercial vehicles,
agricultural and material handling equipments
markets. Business presence and existing client
relations can further be leveraged to enhance group’s
business in North America. Strong synergies across
businesses at MSSL will drive earnings upwards.
Page | 15
Valuations and views

A global play : MSSL is a strong play on the emerging
markets global auto demand, especially passenger
vehicles at the premium end. Outside India revenue
(consolidated) has grown at ~86% CAGR over FY09-14,
increasing the contribution to ~84% in FY14 (from
~44% in FY09). We expect the India/Outside India
revenues to grow at ~15% over FY14-16E. SMP/SMR
revenue growth of ~14% CAGR expected.

Diversified revenue base acts as an efficient hedge
against cyclicality of auto industry (Europe
contributing ~54% of consolidated revenues, India
~15%, China ~9% and other geographies ~22%). The
company boasts of presence in 25+ countries with 125
manufacturing plants across globe.

Reducing dependency on single customer : The
company targets reducing dependency on a single
customer: target <15% of revenues from a single
customer, single country or single commodity.

Widening product portfolio and increasing content
per car, are key earnings positive for the company.

Turnaround in the global subsidiaries to drive
earnings growth : MSSL has a successful track record of
turning around distressed acquisitions by improving
operational efficiencies, reducing costs, building strong
order books and leveraging synergies within the group.

Post acquisition, both SMR and SMP have reported
sharp improvement in profitability. While SMR margins
have improved from 4.6% in 3QFY12 to 10.6% in
4QFY14, SMP margins have improved from -1.4% to
5.8%. Margin expansion has been driven by (1) better
capacity utilization (2) cost cutting initiatives (3)
restructuring (4) growing synergies among businesses.
SMR margins expanded on better utilization levels in
the new plants. While at SMP margins were led by the
restructuring initiatives

We expect the consolidated margins to improve by
250+bps (from FY14) to 11.9% by FY16E.

China/US/Europe demand key to growth : Initial signs
of demand revival in Europe for cars a key positive
trigger for the company. China luxury sales continue to
outperform. MSSL is aggressively targeting expansion
in China to tap the growing demand.
Valuation

At CMP, MSSL trades for 22.7/15x FY15/16E consol EPS
of Rs 13.9/21. We initiate on Motherson Sumi with a
BUY recommendation and a TP of Rs 373/sh.

Key risks to our investment thesis are: delay in Europe
recovery, acquisition stretching the balance sheet,
slowdown in China and commodity prices.
SOTP VALUATION
Standalone
SMP
SMR
Others
Sub total
Less: Consol Debt
Target Price
FY16E EBITDA
13,646
15,418
13,969
4,922
-
Multiple
12.5
9
9
9
-
MSSL's Stake
100%
51%
48%
-
Value
170,571
70,767
59,968
44,296
345,602
16,443
-
Value/sh
193
80
68
50
392
19
373
Source: HDFC sec Inst Research
Page | 16
KEY ASSUMPTIONS
Year ending March
FY12
FY13
FY14
FY15E
FY16E
Revenue
35,289
42,413
44,738
50,665
62,909
% growth YoY
27.0%
20.2%
5.5%
13.2%
24.2%
EBITDA
5,771
7,943
9,096
10,457
13,646
EBITDA %
16.4%
18.7%
20.3%
20.6%
21.7%
Revenue
56,652
69,538
90,690
102,939
118,380
% growth YoY
24.6%
22.7%
30.4%
13.5%
15.0%
EBITDA
2,669
4,414
8,815
11,529
13,969
EBITDA %
4.7%
6.3%
9.7%
11.2%
11.8%
45,279
127,848
155,411
176,403
202,863
Standalone MSSL
SMR
SMP
Revenue
% growth YoY
-
182.4%
21.6%
13.5%
15.0%
891
3,913
7,149
11,466
15,418
2.0%
3.1%
4.6%
6.5%
7.6%
Revenue
9,802
12,454
12,741
14,652
16,849
% growth YoY
15.2%
27.1%
2.3%
15.0%
15.0%
EBITDA
1,413
3,170
3,722
4,280
4,922
EBITDA
EBITDA %
Others
Page | 17
Consol revenues grew at 63.5% CAGR over FY09-14,
expect it to maintain growth trajectory going forward
The company achieved USD
5.02bn of consol revenue in
FY14, a year before the
target as per vision 2015
450
in Rs bn
401
400
147
150
29
100
67
19
20
82
10
26
0
3
6
9
11
0
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
Consol APAT grew at 52.8% CAGR over FY09-14, expect
50+% earnings CAGR over FY14-16E
Consol RoCEs at ~20%, expect to expand going forward
with improving earnings
25
in Rs bn
22
30
%
23
25
20
Dividend Payout Ratio of 48%
(Standalone) and 34%
(Consolidated)
38
30
200
Strong RoCEs of ~20%,
though management plans
to raise it to 40% by 2015
48
40
252
250
50
in Rs bn
304
300
The company boasts of
presence in 25+ countries
with ~84% of consolidated
FY14 sales generated outside
India (target of ~70%)
60
50
345
350
EBITDA grew at 54.4% CAGR over FY09-14, sharp growth
expected going forward on SMP/SMR margin expansion
On higher tax rate and
exchange diff on the long
term loans
11
15
16
10
15
20
18
20
17
11
8
10
5
4
5
1
2
1
5
25
4
0
0
Page | 18
MSSL’s consolidated
revenues have grown faster
than the standalone led by
acquisitions across product
range (esp. SMP and SMR)
Consol rev/APAT has grown at faster CAGR over FY0914 than the standalone, driven by inorganic growth
Consolidated
70%
Standalone
Standalone
450.0
63.5
60%
54.4
52.8 50.4
50%
Given better cash flows, we
expect consol net
debt/equity to come down in
the near future
SMR
Others
in Rs bn
400.0
350.0
250.0
28.0
30%
200.0
150.0
20%
100.0
10%
50.0
0%
0.0
Revenues
We expect growth going
forward to be driven by
outperformance of subs. led
by (1) improvement in
margins driven by cost
cutting initiatives (2) increase
in revenues with new
clients/markets (3) more
synergies and in-house
sourcing
SMP
300.0
35.1
40%
However weaker margin
structure of the acquisitions
led to comparatively lower
growth in earnings
Next leg of revenue growth for the consolidated will be
driven by subs, esp. SMP and SMR
EBITDA
APAT
Also EBITDA will grow with margin expansion in SMP
and SMR driven by management initiatives
We expect net Debt Equity to improve for MSSL
Standalone
50
45
40
35
30
25
20
15
10
5
0
SMP
SMR
Others
in Rs bn
2.5x
2.0x
2.0x
1.5x
1.5x
1.0x
1.0x
0.5x
0.4x
0.6x
0.5x
0.3x
0.0x
FY10
FY11
FY12
FY13
FY14 FY15E FY16E
Page | 19
Key earnings trigger
SMP/SMR entry in new
markets
We anticipate three key
earnings trigger for MSSL:
(1) strong revenue growth of
16/14/14% CAGR for
standalone/SMP/SMR
businesses over FY14-16E
Revenue growth
(2) higher margins in the
SMP/SMR businesses led by
favorable product mix, better
capacity utilization and cost
cutting initiatives. We expect
synergies among group firms
to support margin expansion
(3) better cash flows will lead
to improvement in gearing
ratio for the Company
Growth in
China/USA/Europe
Standalone growth in
Indian markets
Premium vehicle
growth
Key triggers
Improving margins
Product mix
Capacity utilisation
Debt reduction
Better cash flows
Page | 20
INCOME STATEMENT
BALANCE SHEET
(Rs mn)
Net Sales
FY12
FY13
FY14
FY15E
FY16E
147,022
252,253
303,580
344,658
401,001
Growth (%)
79.8%
71.6%
20.3%
13.5%
16.3%
Material Expenses
95,434
164,838
193,615
218,605
252,561
Employee Expenses
23,170
42,827
51,065
56,171
Other Operating Expenses
19,727
29,064
33,749
36,260
8,691
15,523
25,151
Operating Profits
(Rs mn)
FY12
FY13
FY14
FY15E
FY16E
SOURCES OF FUNDS
Share Capital
388
588
882
882
882
Reserves
18,325
22,302
28,711
41,709
60,223
62,912
Total Shareholders Funds
18,713
22,890
29,592
42,591
61,105
41,756
Share capital suspense account
4
-
-
-
-
33,623
43,773
Minority Interest
5,027
4,025
7,896
8,686
9,554
Operating Profit Margin (%)
5.9%
6.2%
8.3%
9.8%
10.9%
Long Term Debt
29,611
27,159
29,834
28,834
27,334
Other Operating Income
2,054
3,917
3,631
3,994
4,393
Short Term Debt
11,678
13,553
10,111
9,111
8,111
10,744
19,440
28,781
37,616
48,166
Total Debt
41,289
40,712
39,946
37,946
35,446
7.3%
7.7%
9.5%
10.9%
12.0%
Deferred Taxes
602
559
496
496
496
-32.8%
5.5%
23.0%
15.1%
10.1%
Long Term Provisions & Others
2,740
4,067
4,126
4,539
4,992
68,375
72,253
82,057
94,258
111,593
46,936
52,774
65,660
70,579
74,148
4,444
3,855
-
-
-
-
-
-
-
-
EBIDTA
EBIDTA (%)
EBIDTA Growth (%)
Other Income
135
170
176
211
254
Depreciation
3,796
7,145
8,172
10,081
11,431
APPLICATION OF FUNDS
EBIT
7,083
12,464
20,786
27,747
36,989
Net Block
Interest
1,649
2,495
2,944
2,843
2,679
CWIP
509
1,628
1,880
2,000
2,000
Goodwill
PBT
4,926
8,342
15,961
22,904
32,311
Investments, LT Loans & Advs
3,888
3,577
6,224
11,271
16,977
Tax
2,153
3,835
4,995
7,167
10,111
Inventories
22,496
26,036
32,822
37,250
43,312
PAT before minority interest
2,773
4,507
10,967
15,737
22,200
Debtors
Minority Interest
(631)
70
3,316
3,481
3,655
2
9
(2)
-
Exchange diff on long term loans
Share of profit/(loss) of associates
EO items (net of tax)
PAT (reported)
APAT
APAT Growth (%)
EPS
EPS Growth (%)
Source: Company, HDFC Sec Inst Research
TOTAL SOURCES OF FUNDS
30,127
29,400
32,384
36,752
42,734
Cash & Equivalents
4,557
5,944
9,062
11,147
19,002
-
ST Loans & Advances, Others
7,210
5,807
6,288
7,136
8,298
809
-
-
-
-
Total Current Assets
64,390
67,187
80,555
92,285
113,346
2,596
4,445
7,650
12,256
18,545
Creditors
30,981
31,808
40,917
46,436
53,993
3,406
4,445
7,650
12,256
18,545
Other Current Liabilities & Provns
20,302
23,332
29,466
33,441
38,883
-12.9%
30.5%
72.1%
60.2%
51.3%
Total Current Liabilities
51,283
55,140
70,383
79,877
92,877
3.9
5.0
8.7
13.9
21.0
Net Current Assets
13,107
12,047
10,173
12,408
20,469
-12.9%
30.5%
72.1%
60.2%
51.3%
Misc Expenses & Others
TOTAL APPLICATION OF FUNDS
-
-
-
-
-
68,375
72,253
82,057
94,258
111,593
Page | 21
CASH FLOW
KEY RATIOS
(Rs mn)
FY12
FY13
FY14
FY15E
FY16E
Reported PAT
1,963
4,507
10,967
15,737
22,200
PROFITABILITY (%)
Non-operating & EO items
FY12
FY13
FY14
FY15E
FY16E
208
(788)
(1,171)
(1,229)
(1,200)
GPM
36.0
35.7
37.0
37.3
37.7
PAT from Operations
1,756
5,295
12,138
16,966
23,400
EBITDA Margin
7.2
7.6
9.4
10.8
11.9
Interest expenses
1,649
2,495
2,944
2,843
2,679
EBIT Margin
4.8
4.9
6.8
8.1
9.2
3,796
7,145
8,172
10,081
11,431
APAT Margin
(4,748)
2,495
2,933
(631)
(864)
26,186
29,259
36,646
(17,203) (15,000)
(15,000)
Depreciation
Working Capital Change
OPERATING CASH FLOW ( a )
2,453
17,429
Capex
(33,610)
(12,394)
Free cash flow (FCF)
(31,158)
5,035
Investments & Others
INVESTING CASH FLOW ( b )
3,092
545
(30,518)
(11,849)
8,983
14,259
3,280
0.8
1.8
3.6
4.5
5.5
14.9
21.4
29.2
34.0
35.8
RoIC or Core RoCE
7.5
10.6
21.0
25.9
32.3
RoCE
3.9
8.3
16.8
20.1
23.4
52.3
46.0
31.3
31.3
31.3
3.0
3.6
4.0
4.0
4.0
RoE
21,646
EFFICIENCY
(3,364)
(3,725)
Tax Rate (%)
(13,923) (18,364)
(18,725)
Asset Turnover (x)
Debt Issuance
29,866
(577)
(766)
(2,000)
(2,500)
Inventory (days)
54.3
36.6
38.5
38.5
38.5
Interest expenses
(1,649)
(2,495)
(2,944)
(2,843)
(2,679)
Debtors (days)
72.8
41.3
37.9
37.9
37.9
FCFE
(2,940)
1,964
5,273
9,416
16,467
Payables (days)
123.8
77.5
82.5
82.5
82.5
Share capital Issuance
1,701
1,042
(2,060)
-
-
Cash Conversion Cycle (days)
3.2
0.4
(6.1)
(6.1)
(6.1)
Dividend
(1,035)
(1,376)
(2,205)
(2,738)
(3,687)
Debt/EBITDA (x)
3.8
2.1
1.4
1.0
0.7
FINANCING CASH FLOW ( c )
28,883
(3,406)
(7,975)
(7,581)
(8,865)
Net D/E
2.0
1.5
1.0
0.6
0.3
NET CASH FLOW (a+b+c)
817
2,175
4,288
3,314
9,056
Interest Coverage
4.3
5.0
7.1
9.8
13.8
Non-operating and EO items
208
(788)
(1,171)
(1,229)
(1,200)
PER SHARE DATA
4,557
5,944
9,062
11,147
19,002
EPS (Rs/sh)
3.9
5.0
8.7
13.9
21.0
CEPS (Rs/sh)
6.5
13.2
21.7
29.3
38.1
Closing Cash & Equivalents
DPS (Rs/sh)
1.2
1.6
2.5
3.1
4.2
BV (Rs/sh)
21.2
26.0
33.6
48.3
69.3
VALUATION
P/E
107.0
62.5
36.3
22.7
15.0
P/BV
14.8
12.1
9.4
6.5
4.5
EV/EBITDA
29.3
16.1
10.7
8.1
6.1
OCF/EV (%)
0.8
5.6
8.5
9.6
12.5
FCF/EV (%)
(9.9)
1.6
2.9
4.7
7.4
FCFE/mkt cap (%)
(1.1)
0.7
1.9
3.4
5.9
Dividend Yield (%)
0.4
0.5
0.8
1.0
1.3
Page | 22
Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Disclaimer:This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived
at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is
made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or
companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other
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addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
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this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
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purchase or other deals in these securities from time to time or may deal in other securities of the companies / organisations described in this report.
HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,SenapatiBapatMarg, Lower Parel,
Mumbai - 400 013
Board : +91-22-6171 7330
www.hdfcsec.com
Page | 23

Motherson Sumi - HDFC Securities

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