Motherson Sumi share price: Nomura Maintains Buy Rating and target price of Rs 162 on Motherson Sumi (16% implied upside from current market price). Morgan Stanley maintains an overweight rating on Motherson Sumi with a price target of Rs 144. Motherson Sumi Systems held a investors meet on 20-21 November, where it made a detailed presentation of its ‘Vision 2025’, with a group revenue target of USD 36 bn (FY20: USD 10 bn) and an ROCE target of 40%. Of the USD 36 bn target, Motherson expects 75% to come from the auto industry through business expansion, technology improvements and new product introductions, and the remaining 25% to come from the non-auto industry areas like Medical, Aerospace, Logistics and IT.

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In terms of auto business segments, management’s focus in the next five years will be as follows:

Modules and Polymer Division, MPD, (51% of FY20 revenue) will focus on expansion in the US , Eastern Europe, India and China, filling white spaces like decoration and interior lighting and expanding to mid- and entry-level segments. The company has also diversified to white goods (Whirlpool), healthcare (GE, Phillips) and telecom (Flex) with jobs like injection moulding, painting and is looking to expand the same.
Wiring Harness Division, WHD, (26% of FY20 revenue) growth would be led by expansion in the China market and content increase, led by greater safety regulations, premiumization and electrification. Rolling stock division (FY20: USD 176 mn, market size USD 5 bn) will be a key growth driver through expansion in Europe and foray in India and China. The company expects WHD market size to be USD 73 bn in 2025 (USD 49 bn in 2020).

Vision Systems Division, VSD, (19% of FY20 revenue) is focused on entering markets where there is no major global mirror supplier, for instance in South Africa (market size: EUR 50 mn, 600k vehicles), Russia (EUR 85 mn, 1.7 mn vehicles), Turkey (EUR 60 mn, 1.2 mn vehicles) & Japan (EUR 600 mn, 8.3 mn vehicles). Motherson currently has 9% share with Japanese OEMs and IT is looking to enter the Japan market through an acquisition. SUVs, pick-ups and electric vehicles are key segments of growth, and “Eco Mirror” and Camera monitoring systems are the key products that should drive value for Motherson in this segment.

Non-auto business scope is led by Healthcare, where the company is focused on building ‘point of care technology led testing and monitoring products’ in medical technology (market size: USD 770 bn in 2025) and health technology (market size USD 310 bn in 2025). Aerospace can be another big opportunity, where a wiring harness greenfield plant will be ready by April 2021.

Nomura believes Motherson’s restructuring is likely to be EPS accretive, led by a significant improvement in its subsidiary SMRPBV’s profitability by FY22-23F. Also, they expect Motherson to benefit from the strong recovery in PV demand seen in India. As well, a healthy PV order book in SMRP and CV recovery in PKC should drive overall revenue.

Nomura’s revenue estimate of USD 10.3 bn for Motherson (ex-Samil) by FY23F, could have a lot of upside. It may not be possible to predict acquisitions for us. However, the company’s track record to take risks without compromising on shareholder returns makes them confident of maintaining Motherson as their long-term top pick amongst auto parts suppliers. The stock currently trades at 17.2x FY23F EPS which is quite attractive.

Risks to Upside:

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Pickups in PV demand growth in key markets
Any value-accretive acquisitions

Risks to Downside:

Trade tensions disrupting global auto supply chains
Long slowdown in PV demand in the key end markets