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    Buy Motherson Sumi, target price Rs 118: JM Financial

    Synopsis

    The brokerage believes that just like in the 2008 Global Financial Crisis, the recent scrapping of incentives announced by major EU countries could revive demand for cars in the near term and support sales of the company.

    Buy-sale12ThinkStock Photos
    JM Financial has given a buy rating to Motherson Sumi with a 12-month target price of Rs 118.


    In the fourth quarter of FY20, Motherson Sumi Systems’ consolidated EBITDA margin improved 130 bps quarter on quarter to 9.2% supported by 400 bps sequential improvement at SMR (Samvardhana Motherson Reflectec). Domestic business also witnessed 190bps quarter on quarter improvement in margins with EBITDAM of 16.9%, 360bps above the brokerage expectation, supported by effective cost control and benign raw material cost.

    Investment Rationale

    The brokerage points out that major OEMs have asked Motherson Sumi to be prepared for ramping-up production as early as July '20. The company’s current order book stands at EUR 13.6bn (SMRPBV) with EUR 5.5bn new order wins. Sales are likely to draw support from a shift towards personal mobility and purchase incentives announced by EU governments. The company also highlighted that it is soon going to share its next 5-year plan with possible diversification into aerospace, defence and healthcare. The automotive segment is likely to contribute c.75% basis for the next 5-year plan.

    The brokerage believes that just like in the 2008 Global Financial Crisis, the recent scrapping of incentives announced by major EU countries could revive demand for cars in the near term and support sales of the company. The brokerage estimates 33% CAGR in consolidated earnings over FY20-22E. It maintains a buy rating with a revised Mar’21 target price of Rs 118, based on 18 times forward earnings. Failure of EU auto stimulus to revive demand and slower-than-expected ramp-up at greenfields are key risks.

    Financials

    For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 14870.32 Crore, down -3.67 % from last quarter Sales of Rs 15436.46 Crore and down -12.12 % 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.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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