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Motherson Sumi Systems Equity Research

HomeCompanyMotherson Sumi Systems Equity Research

Date of Research – 19 January 2016

Price – Rs. 251.00

About the Company

Motherson Sumi Systems Limited (“Motherson Sumi Systems” or the “Company”) was established in 1986 and is the flagship company of the Samvardhana Motherson Group. Motherson Sumi Systems is a joint venture between Samvardhana Motherson Group and Sumitomo Wiring Systems (Japan). The Company primarily manufactures automotive wiring harnesses and mirrors for passenger cars in India and supplies plastic components and modules to the automotive industry.

With a manufacturing and customer base across all six continents, Motherson Sumi Systems has evolved 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.

The Company operates in two segments: Automotive and Non Automotive.

In the automotive segment it’s main products includes wiring harness, high tension cords, plastic and rubber components and cockpit assembly, wire and mould for wiring harness components and brass terminals. In the non automotive segment MSSL’s products include wiring harness, pen-stamp assembly, and plastic components for white goods, household wires, plates and aerobin.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 25,616.96 30,721.01 35,031.89 38,676.92  43,256.71 
Expenses 23,835.73 28,030.92 31,829.24 34,940.91   38,972.01  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 1,781.23 2,690.09 3,202.65 3,736.01   4,284.70  
Depreciation 714.51 817.19 920.63 1,135.67   1,059.04  
Finance Costs 249.46 294.39 317.76 270.62   374.92  
Other income 16.95 17.62 17.65 39.21   146.31  
Exceptional items 164.76 29.06   97.43
PBT 834.21 1,596.13 1,817.15 2,339.87   2,899.62  
Tax 383.51 499.46 525.63 583.58   910.34  
PAT (before Minority Interest and share of Associates) 450.70 1,096.67 1,291.52 1,756.29   1,989.28  
Profit/ (loss) attributable to Minority Interest 7.03 331.55 429.42 482.31   – 
Share of profit / (loss) of Associates (0.87) 0.15 (0.37) 0.24   (183.11) 
Consolidated Profit / (Loss) for the year 444.54 764.97 862.47 1,273.74   2,172.39  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 6.95 8.76 9.14 9.66 9.91 
Net Profit Margin Ratio 1.76 3.57 3.69 4.54 4.60 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 38.80 58.80 88.20 88.20 132.30
Share premium 0.40
Reserves & Surplus 1,832.50 2,230.20 2,871.10 3,235.60 4,113.30
Net worth (shareholders funds) 1,871.30 2,289.00 2,959.30 3,323.80 4,245.60
Minority Interest 502.70 402.50 789.60 1,014.20 1,441.10
Long term borrowings 2,961.10 2,715.90 2,983.40 4,085.90 5,002.30
Current liabilities 6,306.90 6,869.30 8,049.40 8,474.10 9,416.30
Other long term liabilities and provisions 263.2 406.70 412.60 527.10 425.20
Deferred Tax Liabilities 150.60 144.10 168.00 145.70 192.60
Total Liabilities 12,055.80 12,827.50 15,362.30 17,570.80 20,723.10

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 5,138.00 5,662.90 6,566.00 7,084.70 8,732.90
Noncurrent Investments 93.80 71.60 74.90 64.90 100.90
Current assets 6,439.00 6,718.70 8,055.50 9,418.60 10,772.20
Long term advances and other noncurrent assets 295 286.10 547.50 811.70 752.20
Deferred Tax Assets 90.40 88.20 118.40 125.90 364.90
Total assets 12,056.20 12,827.50 15,362.30 17,570.80 20,723.10

Efficiency Analysis

  (%)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 19.19 32.94 39.96 38.02 34.95
ROE / RONW 13.87 19.42 25.85 25.95 41.37

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016  FY 2017
Total Income from Operations (Rs. Cr.) 25,616.96 30,721.01 35,031.89 38,676.92 43,256.71 
Growth (%) 71.84 % 19.92 % 14.03 % 10.40 %  11.84 % 
PAT (Rs. Cr.) 450.70 1,096.67 1,291.52 1,756.29 1,989.28  
Growth (%) 129.54 % 143.33 % 17.77 % 35.99 %  13.27 % 
Earnings Per Share – Basic (Rs. ) 7.56 8.67 9.78 9.63  11.37 
Earning Per Share – Diluted (Rs. ) 7.56 8.67 9.78 9.63  11.37 
Price to Earnings 25.55 33.81 49.86 27.72  39.35 

Dividend History

The Company has maintained an average dividend yield of 1.67 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Motherson Sumi Systems’s average current ratio over the last 5 financial years has been 1.05 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Motherson Sumi Systems’s average long term debt to equity ratio over the last 5 financial years has been 0.87 which indicate that the Company is operating with considerable level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Motherson Sumi Systems’s average interest coverage ratio over the last 5 financial years has been 9.71 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Motherson Sumi Systems reported a promoter holding of 63.10 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 23.50 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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