Motilal Oswal Institutional Equities has a buy rating on the stock of Motherson Sumi with a target price of Rs 150, implying an 18 per cent upside from current levels.
According to the broking firm Motherson Sumi (MSS)'s 2QFY21 operating performance was driven by strong demand recovery and improved efficiencies. SMP's greenfield plants achieved EBITDA breakeven.
"MSS is well-positioned to benefit from demand recovery as well as efficiency improvement at the greenfield plants. We upgrade our FY22E EPS by 7%, factoring in stronger recovery in SMRPBV and PKC. MSS is our preferred bet to play global recovery in Auto. Maintain Buy, with a target price of Rs 150 (Dec'22 SOTP)," Motilal Oswal Institutional Equities has noted.
Highlights from management commentary
Status of operations: Neither plant shutdowns (due to lockdown), nor any changes in schedule by clients were reported. ~80% of plants are running at capacity of >75%.
Demand: Strong demand has been cited for 3QFY21; management expects EU demand recovery to continue despite the second wave of lockdown.
SMP: Greenfield plants could see further revenue growth, driven by new model and variant launches.
PKC: The off-take was lower during the quarter for the US (-40% YoY), Europe (-30%), and Brazil (-39%); only China was positive. However, demand is picking up on the back of an uptick in NA Class-8 orders.
Valuation and view
"Our positive view on Motherson Sumi remains intact (turnaround in greenfield plant + execution of strong order book of SMRPBV + industry recovery). Maintain Buy, with target price of Rs 150 (Dec'22 SOTP)," Motilal Oswal has said.