Consistent performance by Mother son sumi
Consistent performance by SMP & SMR drives growth
In 1QFY16, Cons revenues grew 11.8%YoY to INR 93.8bn led by 6.8%YoY growth in SMRP (25%YoY growth in Euro term). SMR reported 23.7% YoY revenue growth in Euro terms (6.1% in INR terms) while SMP reported 25.4%YoY growth in Euro terms (7.4% in INR terms).
Standalone sales grew marginally by 1%YoY as benefit of soft commodity prices and depreciating yen was transferred to customers. However lower tax rate and higher other income helped to register 44.5%YoY growth in standalone profit.
On a consolidated basis, EBITDA margins improved by 26 bps YoY to 8.9% inspite of higher employee cost due to commencement of new facilities (stands at 19% of sales in 1QFY16 vs. 18.2%YoY). Standalone EBITDA margins inches up marginally 11bps YoY to 18.2%. SMRP EBITDA margins impacted negatively owing to expensing of start up costs of new facilities. SMP reported margins of 6.2% vs. 6.4%YoY while SMR reported EBITDA margin at 9% vs. 9.1%YoY.
MSSL plans for capex of INR 15-20bn pa till next fiscal (Standalone capex INR 2bn). Due to macroeconomic concerns management has decided to slowdown its investment plan in Brazil. Management indicated that slowdown in China’s Car market will not impact MSSL as it accounts for only 7-8% of total sales.
Valuation: The management continues to maintain its positive outlook on the back of healthy domestic business, robust capacity expansion (14 new facilities) and healthy order book (Euro 11bn) build up in SMR & SMP. Continued focus on increasing content supplied per car, margin expansion in SMR & SMP and managements’ track record in attaining its guidance remain the key positives. At CMP of INR 342, the stock is trading at 22.1X / 15.7X of FY16/17E EPS. We value the stock at 19X FY17 EPS which implies a target price of INR 420 and thereby assign BUY rating on the stock.
Risks: Prolonged weakness in Europe, rise in copper prices and adverse cross currency movement can pose a threat to the business.