Despite a poor December quarter scorecard, brokerage firm Motilal Oswal Financial Services believes shares of Motherson Sumi Wiring India have the potential to jump as much as 42 percent.
On February 7, Motherson Sumi Wiring reported a profit of ₹106.16 crore for Q3FY23, down 30 percent year-on-year (YoY) against the profit of ₹151.89 crore in the same quarter last year.
On a quarter-on-quarter (QoQ) basis also, the profit was down nearly 9 percent. In the September quarter of FY23, the company's profit was ₹116.45 crore.
Total revenue from operations for Q3FY23 stood at ₹1,686.80 crore, up 15.6 percent against revenue of ₹1,459.63 crore in the same quarter last year. On a QoQ basis, revenue was down 8 percent against ₹1,835.21 crore in Q2FY23.
The stock ended 3.11 percent lower at ₹51.35 on BSE on February 7.
The stock hit its 52-week high of ₹71.15 on BSE on November 16, 2022. As of February 7 closing, the stock is down nearly 28 percent from that level.
Motilal Oswal found the Q3 numbers of Motherson Wiring in line with its estimates. It maintained its ‘buy’ call on the stock with a target price of ₹73, while retaining FY23E/FY24E EPS (earnings per share) estimates.
"Q3FY23 performance was in-line as miss on revenues due to chip shortages was offset by better-than-estimated margin evolution. While the new plants are expected to achieve optimum utilization by Q1FY24, strong demand is expected to drive strong revenue/PAT growth from FY24 onwards," said Motilal Oswal.
Motilal highlighted that the company's gross margins improved 190bps QoQ (down 20bps YoY) to 35.7 percent versus an estimated 35 percent, benefitting from lag actualisation of cost recovery.
Highlighting the management commentary, Motilal said the company has developed products for 11 new models (including full model change) and 4 facelifts in PVs in 9MFY23 (nine months FY23) and is working on 6 new models, which will be launched in the next 3-6 months.
These 17 new models will contribute nearly 40 percent of the total business. It has hired and trained nearly 7,000 people upfront for the successful launch of the above programs, said the brokerage firm.
Motilal added that in 9MFY23, the company expanded capacity by 25 percent (in terms of man-hours) and added three new plants to meet forecasted requirements and orders for new models/programs.
"The stock trades at 28.2 times and 23.5 times FY24E and FY25E EPS, respectively. We believe it deserves rich valuations due to (a) its strong competitive positioning, (b) top decile capital efficiencies, and (c) it is a beneficiary of EVs and other megatrends in autos," said Motilal Oswal.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
