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QIP takes Motherson closer to its Vision 2020 plan

Motherson Sumi: Good quarter, more to follow?

  Calling the response to its qualified institutional placement (QIP) as encouraging, V C Sehgal, chairman, Motherson Sumi Systems, has indicated the proceeds would be utilised towards Vision 2020 plan. Motherson targets revenues to touch the $18-billion mark or Rs 1.2 lakh crore by 2020 or three times the FY16 levels of Rs 38,400 crore.

About 50–55 per cent of these revenues will flow from organic growth, suggesting acquisitions will be important in meeting the target. Investors are aware Motherson is gearing up for an acquisition by the end of FY17. Apart from garnering Rs 1,993 crore through QIP, Motherson raised Rs 563 crore by issuing preference shares to Sumitomo Wiring Systems.

With these issuances, Motherson is a step closer to funding its capital expenditure (capex) of Rs 2,000 crore, crucial given the ambitious revenue targets. Analysts at Prabhudas Lilladher estimate that Motherson’s target for FY20 indicates an annually compounded revenue expectation of 26.8 per cent in addition to return on capital employed expectation of 40 per cent and dividend pay-out ratio of 40 per cent.

But, they say that going by Motherson’s track record in accomplishing its earlier targets, meeting the Vision 2020 targets also seem plausible. However, the mode of funding to execute the capex will be closely monitored by the Street given that debt remains an issue for Motherson.

Motherson managed to reduce its interest outflow in FY16 (down 15 per cent to Rs 271 crore) and plans to keep interest costs under check in FY17, due to some of its past debt-restructuring efforts. Consolidated interest expenses in June quarter also rose by only seven per cent to Rs 85 crore, versus a 16-17 per cent increase in top line, operating and net profits. While long-term debt-equity ratio remained stiff at 1.2x, as against 1.13x in FY15, Prayesh Jain, associate vice-president, IIFL Wealth, feels that this may reverse soon for Motherson.

“A lot of new capacities may start contributing to revenues in FY17,” says Jain. Analysts at ICICI Securities aren’t too perturbed with the variability in quarterly earnings, given the robust order book of Rs 1 lakh crore. With these orders on-stream, analysts are confident of diversification and premiumisation strategy of Motherson. Immediate upside seems capped given Bloomberg target of Rs 320. New capacities contributing to revenue growth may provide fresh triggers for the stock.