Motherson Sumi: FY20 revenue target will be achieved through acquisitions.

Motherson Sumi: FY20 revenue target will be achieved through acquisitions.

Update on the Indian Equity Market:

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Motherson Sumi: FY20 revenue target will be achieved through acquisitions.

Excerpts from an interview with Vivek Chaand Sehgal, Chairman, Motherson Sumi Systems published in ET Auto dated 15th December 2019.

  • Motherson Sumi has projected $18 bn revenue for FY20. There is no further scope for organic growth and growth will come from acquisitions. The timing of acquisitions cannot be pre-planned. Due to pain in the system, valuations are very low and the management is standing by the March 2020 target.
  • New acquisitions have to be on the management’s terms. They require the new acquisitions to deliver 40% ROCE and are ready to walk away if the criterion is not met.
  • Management has 11 companies under the radar for acquisition. The topline could be anywhere between $30-35 bn. The timeline could be longer but management is confident to hit a number close to their topline target.
  • According to Mr Sehgal, the current situation in Indian automobile space is worse than the 2009 crisis. In 2009, a particular segment of the world was affected and the strike back was fast. Currently, the slowdown is prolonged. Every aspect of not just Indian but the global automotive industry is going through a churn.
  • Motherson is in a better place than peers because almost its entire order book and new plants cater to new models by OEMs.
  • Things should improve in the next 6-9 months with clarity on EU, hopeful end to the American trade war and shift to BS-VI in India.
  • On the global side, some stress is felt in India and China.   Europe is in little stress but is coming out of it. America is in a re-assessment mode and is thinking of build-in America.
  • Motherson has maintained a strategy such that no company, no component, no carmaker should contribute more than 15% of their turnover. In the last five years, they have opened around 34-35 plants around the world. They are working to set up plants in countries where needed. Motherson is not affected so much by the trade wars, because they are producing locally in those places.
  • Peers should focus on cutting costs to bring down the cost of parts.
  • Green shoots are visible but it is uncertain whether the industry has bottomed out.

Consensus Estimate (Source: market screener website)

  • The closing price of Motherson Sumi systems was ₹ 141/- as of 16-December-2019. It traded at 26.1x/ 20.7x/ 17.4x the consensus EPS for FY20E/FY21E/FY22E of ₹ 5.4/ 6.8/ 8.1 respectively.
  • Consensus target price of ₹ 145/- implies a PE multiple of 17.9x on FY22E EPS of ₹ 8.1/-.

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