.

Volume No.. 1 Issue No. 19

Motherson Sumi Systems Ltd. May 22, 2015

BSE Code: 517334 NSE Code: MOTHERSUMI Reuters Code: MOSS.NS Bloomberg Code: MSS:IN

Motherson Sumi Systems Limited (MSSL), the flagship company of the Market Data
Samvardhana Motherson Group, was established in 1986. It is a joint
venture between Samvardhana Motherson Group and Sumitomo Wiring
Rating BUY
CMP (`) 478.3
Systems (Japan). The company is a leading global auto component player
with presence across 25 countries. The acquisition of Visiocorp in 2009 and Target (`) 559
Peguform in 2011, has established MSSL as a global Tier-1 supplier to the Potential Upside ~17%
major OEMs of the automotive industry. With a diverse global customer Duration Long Term
base comprising of almost all leading automobile manufacturers globally, Face Value (`) 1.0
MSSL is currently the largest auto ancillary in India and also ranked 55th in 52 week H/L (`) 534.7/272.8
global auto component suppliers. Adj. all time High (`) 534.7
Decline from 52WH (%) 10.5
Rise from 52WL (%) 75.3
Investment Rationale Beta 1.1
Mkt. Cap (`bn) 421.8
 Opportunities abound - MSSL currently derives ~75% of its consolidated
EV (`bn) 462.1
revenues from India and Europe, however these two geographies account for
Fiscal Year Ended
just ~25% of the global 75 mn car market. The management's recent
comments indicate that the next target geography for them is the US and Y/E FY14A FY15A FY16E FY17E
China which would mean that the addition of these geographies will Revenue (`bn) 304.3 350.3 412.3 494.8
significantly increase the company’s exposure to the global car market. EBITDA (`bn) 24.0 32.0 36.3 45.5
Setting up of plants in Mexico/China for SMR and SMP and recent acquisition Net Profit (`bn) 7.7 8.6 11.3 16.4
of the North American firm Stoneridge's wiring harness business are the EPS (`) 8.7 9.8 12.8 18.5
initial foundations which would possible yield fruitful results in the coming P/E (x) 55.1 41.1 37.5 25.8
quarters. P/BV (x) 14.3 12.7 10.1 7.6
EV/EBITDA (x) 19.2 14.4 12.6 9.9
 Stoneridges’ wiring harness business provides synergy benefits -
ROCE (%) 25.9 25.3 25.0 27.4
MSSL’s latest acquisition of the North American company Stoneridge’s wiring
ROE (%) 25.9 30.9 26.8 29.3
harness business would enable it to have an access to the CV segment where
it has a miniscule presence. The acquisition will help the company in further
solidifying its footprint in the American market. With MSSL’s capability of One year Price Chart
turning around acquisitions and expertise in wiring harness business, we see 200
strong traction in revenues and profitability for the wiring harness division. 150
100
50
 Inorganic route has been a critical part of MSSL growth strategy - One 0
Jul-14
Jun-14

Apr-15
May-14

Nov-14

May-15
Aug-14

Dec-14
Jan-15
Sep-14

Feb-15
Mar-15
Oct-14

of the key drivers for the 47.8% 10‐year CAGR in consolidated revenues has
been the sound acquisition strategy of the company. MSSL’s strategy is to
acquire assets with high growth potential with their existing customer CNX Nifty MSSL
contracts and relationships. Further, it improves and stabilizes its business
Shareholding Pattern Mar15 Dec14 Diff.
through enhanced quality and delivery parameters and engineering support,
coupled with its management know‐how and experience. Promoters 65.6 65.6 -

FII 18.3 18.2 0.1

DII 5.2 5.1 0.1
Others 10.9 11.1 (0.2)
 MSSL - a world-class supplier of high performance automotive
components, modules and systems

MSSL, established in 1986, is a joint venture (JV) between Samvardhana Motherson Group and
MSSL is a JV between Sumitomo Wiring Systems (Japan). MSSL is a leading automotive mirror and wiring harness
Samvardhana Motherson manufacturer for passenger cars. The wiring harness division of MSSL is one of the largest
Group and the Japanese firm, manufacturers of wiring harnesses in India, serving the entire cross-section of the automotive
Sumitomo Wiring Systems. industry. MSSL also supplies wiring harnesses to material handling, earth moving & farm
equipment, white goods & electronics, elevators, office automation and medical equipment
industries. The company also offers a range of products in the fields of electrical distribution
systems, plastic molding, elastomers processing, tooling, metal machining, automotive rear view
mirrors and integrated modules.
The company is one of the
largest manufacturers of Over the years MSSL has collaborated with global technology leaders and has further leveraged
wiring harnesses in India, its competency in existing areas to create products fulfilling the technical needs of its customers.
serving the entire cross- The acquisition of mirror business from Visiocorp [now renamed as Samvardhana Motherson
section of the automotive Reflectec (SMR)] and Peguform [now named Samvardhana Motherson Peguform (SMP)] has
industry. helped MSSL evolve as one of the world’s leading manufacturers of automotive rear view
mirrors and a leading manufacturer of instrument panels, bumpers and door trims in Europe.

MSSL provides a range of services from design to manufacturing, supplies to logistics to its
customers in India and abroad. The company as a supply partner provides complete solutions to
their customers right from product design to mass supplies. With presence in 25 countries
including India (Noida , Gurgaon, Manesar, Faridabad , Pune, Bengaluru, Chennai, Kandla,
Pathredi, Tapukara, Lucknow & Puducherry), MSSL has manufacturing bases across six
continents.

Business unit segregation

Motherson Sumi Samvardhana

36.12%
Systems Ltd (MSSL) Motherson
International Ltd
(SMIL)
Samvardhana Motherson
51% Reflectec (SMR). 49%
Global Rear-view Mirror
Business

Other JVs and Samvardhana Other JVs and

subsidiaries 51% 49% subsidiaries
Motherson Peguform
(SMP).
Global Polymer Business
 Recorded healthy numbers in Q4FY15 and FY15
During the quarter, while the MSSL recorded healthy numbers in Q4FY15 with 12.7% YoY growth in revenue at `94,743.3 mn
automotive segment compared to `84,067.4 mn in corresponding period a year ago, led by strong performance
registered a growth of 9.7% across its business segments. During the quarter, while the revenue from automotive segment
YoY to `90,582.2 mn, non- registered a growth of 9.7% YoY to `90,582.2 mn, non-automotive segment revenue grew by
automotive segment grew by 179.6% YoY to `4,050.4 mn. Further, revenue from international business (the major
179.6% YoY to `4,050.4 mn. contributor to MSSL’s performance, accounting for ~85% of total revenue) grew by 13.5% YoY
followed by 6.6% revenue growth from the domestic business. For FY15, MSSL reported a
revenue growth of 15.1% YoY to `350,318.9 mn as against `304,279.0 mn in FY14.

Quarterly performance trend

1,00,000.0 10,000.0 10.3 9.9 10.5

9,000.0
95,000.0 8,000.0 10.0
9.1
7,000.0 9.5
90,000.0
`mn

`mn
6,000.0

%
8.8

9,374.5
94,743.3

8,666.6
85,000.0 5,000.0 9.0

8,292.1
8.7
91,493.5

7,270.6

7,089.3
4,000.0
84,067.4

80,000.0 8.5
83,915.4

3,000.0
80,166.6

75,000.0 2,000.0 8.0

1,000.0
70,000.0 0.0 7.5
Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

Total revenue EBITDA EBITDA margin (%)

MSSL’s EBITDA margin In line with growth in revenue, EBITDA also grew by 8.2% YoY to `9,374.5 in Q4FY15. However,
remained under stress, down MSSL’s EBITDA margin remained under stress, down by 40bps YoY to 9.9% in Q4FY15 from
by 40bps YoY to 9.9% in 10.3% in Q4FY14 impacted by higher operating expenses. For FY15, MSSL posted 120 bps YoY
Q4FY15 from 10.3% in Q4FY14. expansion in EBITDA margin at 9.1% against 7.9% in FY14.

Segment-wise revenue break-up

Geography-wise Product-wise
90,000.0 1,00,000.0
80,000.0 90,000.0

70,000.0 80,000.0
70,000.0
60,000.0
`mn

`mn

60,000.0
50,000.0
90,582.2
88,377.0
79,664.5

82,588.0

82,277.5
76,275.7

50,000.0
77,590.5
70,481.1
70,169.2

65,891.7

40,000.0
40,000.0
13,555.2
13,329.3

13,222.4
12,720.9

12,483.2

30,000.0 30,000.0
4,050.4
3,082.0
2,507.2
1,579.5
1,448.6

20,000.0 20,000.0
10,000.0 10,000.0
0.0 -
Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

Within India Outside india Automotive Non-Automotive

 Meanwhile, the company registered a decent growth in net profit by 12.4% YoY to `3,401.0 mn
compared to `3,025.3 mn in Q4FY15. However, 20.8% and 8.3% YoY rise in taxation and
depreciation charges, coupled with 7.4% YoY decline in other income, limited the gains. For
FY15, MSSL reported a 12.7% YoY growth in net profit at `8,624.7 mn, as against `7,650.0 mn
In a move to acquire a stronger in FY14.
traction in the US market, MSSL
acquired the Wiring harness Stoneridge’s acquisition to strengthen footprints in North America
business of North America based
Stoneridge Inc. through asset In a move to acquire a stronger traction in the US market, MSSL acquired the Wiring harness
purchase at transaction value of business of North America based Stoneridge Inc. through asset purchase at transaction value of
USD 65.7 mn. USD 65.7 mn. The company closed the deal in August 2014. Stoneridge’s Wiring Business
designs and manufactures wiring harness products for sale primarily to the commercial,
agricultural and off highway vehicle markets, as well as assembles entire instrument panels
that are configured specifically to an OEM customer’s specification in the commercial vehicle
market. The acquisition would provide MSSL access to the CV segment where it has a miniscule
presence. The transaction comprises six manufacturing facilities located in Portland, Indiana
(USA); Chihuahua, Mexico; Saltillo, Mexico; and Monclova, Mexico; as well as an engineering
and administrative center located in Warren, Ohio. The addition of these manufacturing
With this acquisition, MSSL now facilities would enable MSSL to service the growing requirement of the customers in the region.
has over 45 plants related to With this acquisition, MSSL now has over 45 plants related to wiring harness business. The
wiring harness business. transaction will allow MSSL to further strengthen its footprint in American market by building
upon existing knowledge and customer relationships that the acquired business has in the
region.

Acquisition of Scherer & Trier to boost market share

After ensuring sufficient ground in North America, MSSL inked a pact with Germany based
Scherer & Trier group. Its subsidiary Samvardhana Motherson Automotive Systems Group BV of
Netherlands has signed an agreement to buy Scherer & Trier assets including two
MSSL’s subsidiary Samvardhana
manufacturing facilities situated in Germany and Puebla, Mexico. The consideration payable is
Motherson Automotive Systems
approx. €36 million for the assets, including land and building & inventories along with the
Group BV of Netherlands has
shareholding held in Mexican entities.
signed an agreement to buy
Scherer & Trier assets including The acquired entity develops and manufactures extrusion profiles, moulded parts made of
two manufacturing facilities thermoplastics and hybrid components made of metal and plastic catering to OEMs like Audi,
situated in Germany and Puebla, BMW, Daimler, Ford, GM, VW etc. along with other customers. It also has a strong vertical
Mexico. integration, including state-of-the-art tool room for injection moulding tools, process
engineering and in-house material development capabilities. This acquisition will further
consolidate MSSL’s polymer business in Europe & North America.

SMP to sustain growth trajectory

With annual sales of €1.9 bn as in FY14 (+5% from FY13), Samvardhana Motherson Peguform
(SMP) is the largest subsidiary of MSSL. The growth in sales in FY14 was mainly supported by an
increase in revenue from Europe, which remains the major contributor to turnover with 81%
share. Revenue contribution from China stood at 11%, while South America accounted for 8%.
The company’s consistent efforts to reduce costs reflected in improvement in margins in FY14.
EBITDA stood at `8,466 mn (€104 mn) with EBITDA margins at 5.4% as against 3.8% in FY13.
The division gained strategic support from customers through improvement of global supply
footprint, investment in new technologies and increase of capacities and modernization.
 SMP has production facilities and engineering centers in 7 countries across the globe. The
subsidiary specializes in developing, producing and distributing Polymer interior and exterior
In order to expand its customer systems for the global automotive market. With a portfolio of +300 patents, SMP enjoys ~18%
base across the globe, SMP is market share of the European premium bumpers market, 9% market share of the European
currently in the process of premium instrument panels market and 23% market share of the European premium door
expanding business base in panels market as assessed by the company. In order to expand its customer base across the
China, Brazil and North America globe, SMP is currently in the process of expanding business base in China, Brazil and North
(including Mexico). America (including Mexico).

SMP’s capacity expansion initiatives, undertaken in FY14 in its plants in Latin America, Spain,
China, Germany etc. will start yielding results in a quarter or two. Thus, we believe, the
contribution to total revenue will increase significantly, which consequently will improve its
overall revenue-base.

Upcoming projects

Location Product Company Start of production

Spain Painting Facility SMP Q1FY16
USA Exterior Mirror SMR Q1FY16
India Polymer Products Motherson Sumi Q1FY16
India Polymer Products Motherson Sumi Q1FY16
India Wiring Harness Motherson Sumi Q1FY16
India Wiring Harness Motherson Sumi Q2FY16
Germany Door Panels SMP Q3FY16
Mexico Bumper & Rocker panels SMP Q1FY17
China Door Panels SMP Q1FY17
Thailand Wiring Harness Motherson Sumi N/A

Prospects of wiring harness business seems brighter

MSSL is a leading supplier of wiring harnesses to nearly all OEMs in India and together with its
The comprehensive design JVs it enjoys more than 65% market share of the passenger car segment in India, with over 40
capabilities from the vehicle manufacturing facilities and 7 design centers across India, UAE, Ireland, Sri Lanka, Italy, Japan,
designing stage and extensive UK, Mexico, Thailand and South Korea. Manufacturing of wiring harnesses (the assembly of
product portfolio facilitate wires that transmit signals or electrical power in a vehicle) is the main business of the
continuous gain of market share company. The comprehensive design capabilities from the vehicle designing stage and
and rapid growth in revenues. extensive product portfolio facilitate continuous gain of market share and rapid growth in
revenues. The prospects of the segment remain encouraging with increasing demand for more
features and functionality in vehicles which is a striving force for change in the traditional
electrical distribution system in cars.

Meanwhile, the company has set an ambitious target of increasing its revenue base to US$18
billion by FY20 from US$5.5 billion at the end of FY15. The company’s management said that
the company aiming to achieve this target through organic growth, as well as through
customer-led acquisitions and the organic growth of these acquisitions. Out of this, the
company expects 30-40% growth to come from inorganic acquisitions going ahead, while, the
rest from organic growth.
 Balance Sheet (Consolidated) Profit & Loss Account (Consolidated)
Y/E (`mn) FY14A FY15A FY16E FY17E Y/E (`mn) FY14A FY15A FY16E FY17E
Share Capital 882.0 881.9 881.9 881.9 Total revenue 304,279.0 350,318.9 412,325.3 494,790.4
Reserves&surplus 28,711.0 32,356.3 41,058.1 54,858.9
Net Worth 29,593.0 33,238.2 41,940.0 55,740.8 Expenses 280,308.0 318,292.4 375,990.5 449,309.5
Minority Interest 7,896.0 10,142.5 11,156.8 12,272.4
Total debt 39,945.0 49,104.5 53,602.7 58,530.1 EBITDA 23,971.0 32,026.5 36,334.8 45,480.9
Deferred tax
1,680.0 1,457.3 1,603.0 1,763.3
liability Other Income 3,106.0 176.5 194.2 213.6
Provisions 6,742.0 7,747.9 9,079.5 10,655.7
Other non- Depreciation 8,172.0 9,206.3 10,126.9 11,139.6
2,083.0 3,090.9 3,709.1 4,450.9
current liabilities
Other current EBIT 18,905.0 22,996.7 26,402.0 34,554.8
65,684.0 70,927.5 82,438.6 97,000.7
liabilities
Total equity & Interest 2,943.0 3,177.6 3,431.8 3,706.4
153,623.0 175,708.8 203,529.7 240,413.9
liabilities
Fixed assets 65,660.0 70,847.3 77,932.0 85,725.2 Profit Before Tax 15,962.0 19,819.1 22,970.2 30,848.5
Investments 749.0 649.6 681.9 716.0
Tax 4,994.0 5,256.3 6,990.9 9,297.9
Deferred tax
1,184.0 1,908.6 2,328.5 2,840.8
assets Profit after tax 10,968.0 14,562.8 15,979.3 21,550.6
Loans&advances 9,728.0 13,130.1 15,668.8 18,730.5
Exceptional item - (1,647.6) - -
Other non-
1,909.0 2,425.2 3,031.5 3,789.4 Minority Interest 3,316.0 4,294.2 4,723.6 5,196.0
current assets
Other current Share of
74,393.0 86,748.0 103,887.0 128,612.1 (2.0) 3.7 3.7 3.7
assets profit/loss of asso.
Total Assets 153,623.0 175,708.8 203,529.7 240,413.9 Net Profit 7,650.0 8,624.7 11,259.4 16,358.3

Key Ratios (Consolidated)

Y/E FY14A FY15A FY16E FY17E Valuation and view
EBITDA Margin (%) 7.9 9.1 8.8 9.2 MSSL’s performance remained healthy in Q4FY15 in terms of
EBIT Margin (%) 6.2 6.6 6.4 7.0
revenue as well as profitability. The company has recently
acquired the wiring harness business of Stoneridge having a
NPM (%) 2.5 2.5 2.7 3.3
turnover of ~USD 300 mn from six manufacturing facilities in
ROCE (%) 25.9 25.3 25.0 27.4 Americas and is in the process of acquiring Scherer & Trier.
ROE (%) 25.9 30.9 26.8 29.3 These are by far the largest acquisitions for the core business
of wiring harnesses which will provide the company market
EPS (`) 8.7 9.8 12.8 18.5
recognition in North America & Europe and is expected to
P/E (x) 55.1 41.1 37.5 25.8 provide further headroom to growth. Meanwhile, the
BVPS (`) 33.6 37.7 47.6 63.2 management has indicated of improving its return on capital
employed (ROCE) to 40% on consolidated basis by FY20.
P/BVPS (x) 14.3 12.7 10.1 7.6

EV/Net sales (x) 1.5 1.3 1.1 0.9 Considering the above aspects, we rate the stock as ‘BUY’ at
the CMP of `478.3, attractively placed at EV/EBITDA of ~12.6x
EV/EBITDA (x) 19.2 14.4 12.6 9.9
and ~9.9x, for FY16E and FY17E, respectively to arrive at a
target price of `559, with a potential upside of ~17% for the
coming 12 months.

For private circulation only

Disclaimer : This document has been prepared by Funds India and Dion Global Solution Ltd. (the company) and is being
distributed in India by Funds India. The information in the document has been compiled by the research department. Due
care has been taken in preparing the above document. However, this document is not, and should not be construed, as an
offer to sell or solicitation to buy any securities. Any act of buying, selling or otherwise dealing in any securities referred to
in this document shall be at investor’s sole risk and responsibility. This document may not be reproduced, distributed or
published, in whole or in part, without prior permission from the Company.

© Copyright – 2015 - Dion Global Solution Ltd and Funds India.

Contact Us:

Funds India
H.M Center, Second Floor, 29,
Nungambakkam High Road, Nungambakkam,
Chennai - 600 034.
T: +91 7667 166 166
Email: [email protected]