Motherson Sumi Systems Ltd. among auto parts suppliers remained the top pick for most analysts, who raised their target prices and earnings estimates for the company citing better margin, improved cash flow and focus on electric vehicles.
A sustained turnaround at global subsidiaries of one of the world’s largest makers of automotive wiring harnesses and mirrors for passenger cars, coupled with reduced debt levels were other catalysts for the upgrade in estimates, according to research reports of brokerages compiled by BloombergQuint.
Net profit of Motherson Sumi — which counts Audi AG, Daimler AG and Volkswagen AG as its top customers — jumped nearly fourfold over the year earlier to Rs 1,268.3 crore in the October-December period. Its revenue, operating income and margin also beat expectations.
“Free cash flow and return on equity improvement should drive rerating [of the stock],” CLSA said in a note. Morgan Stanley sees a global greenfield ramp-up and a recovery in domestic sales to be next key drivers. The analysts also remained bullish on the company.
Shares of Motherson Sumi gained as much as 6.9% to Rs 211 - the highest since September 2018. The stock is up for the fourth straight day. Of the 30 analysts tracking Motherson Sumi, 21 recommend a ‘buy’, eight suggest a ‘hold’ and one has a ‘sell’ rating, according to Bloomberg data. The stock crossed its 12-month Bloomberg consensus price target of Rs 197.7 in today's session.
Here’s what the analysts have to say:
Morgan Stanley
- Maintains ‘overweight’ rating; hikes price target to Rs 251 apiece from Rs 144.
- Leverage gains driving sharp cash flow recovery is starting to play out.
- Electric vehicles now account for 21% of SMPBRV’s order book.
- Raises FY23 consolidated Ebitda estimates by 27%.
- Remains top pick among auto suppliers.
CLSA
- Upgrades to ‘buy’ from ‘outperform’; raises price target to Rs 250 apiece from Rs 175.
- Consolidated financials reverting to historical peaks.
- Sustained turnaround at SMP was the biggest positive.
- Focus on free cash flow, deleveraging and group reorganisation remains on track.
- Expects company to turn net cash by FY23.
- Raises FY22-23 EPS estimates by 21-29% to factor in better margins.
Nomura
- Maintains ‘buy’ rating; hikes price target to Rs 252 apiece from Rs 162.
- EV order book gives strong visibility.
- Margin to enter new orbit with cost reduction and premiumisation.
- Content per car and profitability will rise as most of the upcoming EVs are feature-rich premium vehicles.
- Raises consolidated revenue estimates by 4%, 9% and 9%, and EPS estimates by 118%, 44% and 42%, respectively, over FY21-23.
- Acquisitions can provide further upside.
- Remains top pick in the auto components space.
Goldman Sachs
- Maintains ‘buy’ rating; hikes price target to Rs 234 apiece from Rs 198.
- Beat aided by outperformance at all four major businesses.
- Result demonstrates that proposed restructuring is earnings accretive.
- Remains positive on the back of a sequential pick-up in global auto sales, profitability improvement in global subsidiaries, increase in content per car and attractive risk-reward.
- Management confident of sustaining operational performance at global subsidiaries despite semi-conductor disruption.
- Raises FY23 Ebitda forecast by 8%.
Investec
- Maintains ‘buy’ rating; raises price target to Rs 220 apiece from Rs 160.
- Strong operational performance led by SMP turnaround.
- Turnaround in greenfield operations, along with SMP business, bodes well for overall profitability.
- Daimler’s announcement to accelerate EV launches to 2022 should increase and fast-forward execution at the company’s Tuscaloosa plant.
- Revises Ebitda estimates higher by 14-16% for FY22-23 on the back of margin expansion.
- Raises EPS estimates by 24-25% for FY22-23 on the back of reduction in interest expense and increase in profitability from JV and associates.
- Current valuations are supportive.
Motilal Oswal
- Maintains ‘buy’ rating; hikes price target to Rs 225 apiece from Rs 189.
- Highest-ever quarterly profit led by best ever margin in SMP.
- Strong order book in SMRPBV, commercial vehicle recovery in the U.S. and passenger vehicle recovery in India improves visibility.
- Well positioned to benefit from a demand recovery as well as efficiency improvement at its greenfield plants.
- Raises FY22 EPS estimate by 7%, factoring in a stronger recovery in SMRPBV, India and PKC.
- Preferred bet to play the global recovery in auto.
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