Motherson Sumi climbs 3% as Credit Suisse remains positive, says valuation attractive

Motherson Sumi Systems shares gained 3 percent intraday on June 12 after Credit Suisse retained its positive stance on the stock, citing attractive valuations and expected growth going ahead.

Overall auto space had been under pressure before recovery started in May-end. The stock corrected 30 percent against 6 percent loss in Nifty Auto index in the last three months.

At 0920 hours IST, it was quoting at Rs 120.60, up Rs 2.55, or 2.16 percent on the BSE.

The global brokerage said global auto component suppliers warrant a relook after sharp correction in valuations. "Motherson is trading 1x standard deviation (SD) below 10-year average and Varroc is at a discount to its global lighting peers."

Credit Suisse sees little scope for further de-rating in both. In case of Motherson, the brokerage sees normalisation from second half of FY20, which should help margin.

It said both also have sizeable tailwinds from domestic BS VI opportunity and reiterated positive stance on Motherson as well as Varroc. "Motherson stands higher up the pecking order given its stronger track record."

India's largest automotive wiring harness player posted a disappointing set of numbers for Q4FY19. Slowdown in demand in domestic and international markets and margins contraction for SMP and SMR businesses weighed, but its order book continues to be very strong.

"The push towards EV (electric vehicles) and transition towards BS VI emission norms should result in healthy growth in top line and a gradual increase in margins. This, coupled with ramping up of new plants, is expected to result in increase in operating leverage. MSSL is trading at reasonable valuations, which calls for investors’ attention," Moneycontrol Research said last month after its quarterly earnings.

While the company posted year-on-year (YoY) growth of 11.4 percent in its consolidated net revenues, its earnings before interest, tax, depreciation and amortisation (EBITDA) margin witnessed contraction of 250 bps due to poor operating performance of SMP (Samvardhana Motherson Peguform) and SMR (Samvardhana Motherson Reflectec).

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