July 2, 2022

Motherson Sumi Systems Review: Purchase

Turn to EVs for medium-term help; FY22-23rd EPS down 6-8% due to lower growth estimate; upgraded to “Buy” rating

Considering the recent fix from Motherson Sumi Systems, we are improving the inventory to buy (from ADD). We believe the company is well positioned to take advantage of recovering automotive demand and improving chip supply from H2CY22e. The company is well positioned to benefit in the medium term from the increase in electronic content per vehicle in passenger vehicles, strong relationships with OEMs, the shift to electric vehicles and supplier consolidation, particularly in the industry. world of plastic components.

The global auto industry remains volatile; expect a strong recovery from H2CY22e
The SMRPBV business has been strongly impacted due to the supply side pressures facing its major customers such as Daimler, Volkswagen Group, Hyundai among others which are expected to improve from H2CY22e with the improvement the manufacturing capacity of the chip sector. Demand conditions remain strong due to improving consumer confidence, preference for personal mobility and the ongoing economic recovery. Even though the global automotive industry is expected to grow by 7% CAGR, we expect SMRPBV’s revenue to grow by 11% CAGR, driven by the ramp-up of completely new factories, higher content growth, and gains in market shares.

Increase of the BEV program mix in the order book to drive content growth
We expect SMRPBV content per vehicle to increase as customers globally turn to EVs in the medium term.

27% of the SMRPBV order book (15.3 billion euros) consists of dedicated electric vehicle models from September 2021. With the increase in demand for electric vehicles, we expect the achievements overall increases slightly due to the increased need for aesthetic features and light weight.

The demand scenario in the domestic PV segment remains on a solid footing
We expect revenue from stand-alone operations (including DWH) to increase by 25% CAGR in FY2021-24, due to (i) a strong recovery in the PV segment from FY 2023, driven by improved chip supply and (ii) higher ASPs due to RM inflation. PV demand continues to remain strong with a backlog of 0.7 million units (25% of national sales in fiscal 2021), which bodes well. The economic disruption due to Omicron remains the greatest risk.

Reduce our FY2022-23e BPA by 6-8%
We have reduced our consolidated EPS estimates for fiscal year 2022-23e from 6% to 8% on lower revenue growth assumptions for the SMRPBV and PKC businesses given the uncertainty associated with chip supply as well as to the Omicron variant. We are upgrading the action to Buy because we believe the company is well positioned to benefit from the upturn in the global automotive cycle, given its well-diversified customer base as well as its product offerings.

FV revised to Rs 255 (from Rs 265.)

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