“The Indian PV industry is undergoing various structural changes, such as the increasing complexity of vehicles, electrification and an increasing mix of UVs. This provides high structural growth visibility for wiring harness content. Also, MSUMI’s leadership in the segment, strong technology support, and robust ROEs will drive premium valuations, in our view,” Nomura said.
Nomura says that wiring harness (WH) content in vehicles experienced a significant increase, from approximately 2.5% previously to about 4.5% at present. This rise has driven an impressive 10% revenue compound annual growth rate (CAGR) over the past decade, despite only a 2% CAGR in OE car sales volume.
“Based on these trends, we estimate a robust 15% revenue CAGR for Motherson Sumi between FY23 and 25F. We anticipate a 7% CAGR in domestic car sales volume, given the current market environment,” the Nomura report said.
Motherson Sumi Wiring reported a profit of Rs 106.16 crore for Q3FY23, down 30% year-on-year (YoY) against the profit of Rs 151.89 crore in the same quarter last year. Total revenue from operations for the period stood at Rs 1,686.80 crore, up 15.6% against revenue of Rs 1,459.63 crore in the same quarter last year.
Nomura expects the EBITDA margin to improve from around 10.9% in FY23F to about 12%/12.7% in FY24/25F led by operating leverage benefits. This can potentially improve to 14% by FY30F as MSUMI can localise the higher-value components in EVs. Thus, the brokerage firm expects a strong 27% EPS CAGR over FY23F-25F. Limited capex intensity and high asset turnover should lead to robust ROEs of 46%, much ahead of most other auto component suppliers, it said.
“The stock is currently trading at 29x FY25F EPS, which we believe is attractive given its high growth visibility, expanding addressable opportunity and strong ROEs. Thus, we expect its premium valuations to sustain. With a 22% potential upside from current levels, we initiate with a Buy recommendation on the stock,” Nomura said.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)