Wealth creator: This auto component stock gave more than 4 times return in less than 11 months

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Brokerages maintained their bullish views on Motherson Sumi Systems after it delivered robust returns for the quarter ended December 31.

The auto components major on February 12 reported a nearly four-fold jump in consolidated net profit from continuing and discontinued operations at Rs 1,268.31 crore in the third quarter ended December 31, 2020. It had posted a consolidated net profit from such operations of Rs 340.32 crore in the same period last fiscal.

Emkay Global Financial Services retained ‘Buy’ on Motherson Sumi with a price target of Rs 240. “Our positive view is underpinned by strong management capabilities, expectations of a recovery in the underlying auto industry across regions and improvement in profitability across divisions,” it said.

Emkay further added that reduced stake of Sumitomo Wiring Systems in MSS will allow to pursue acquisition opportunities more aggressively. This restructuring exercise is a step toward the company’s Vision 2025–revenue target of $36bn with ROCE of 40%.

Shares of the company have rallied 356% to its new 52-week high of Rs 221 on February 15 from Rs 48.50 on March 24. The rise in share price indicates that an investment of Rs 10,000 in Motherson Sumi Systems at March lows would have become nearly Rs 45,600 at present.

Commenting on Q3 results, Motilal Oswal Financial Services said, “Motherson’s December FY21 performance was a beat, led by all-round strong performances across businesses. The recovery in SMP sustained with the best ever EBITDA margin at 9.5%. The company is well-positioned to benefit from a demand recovery as well as efficiency improvement at its greenfield plants.”

Japanese brokerage firm Nomura also has ‘Buy’ on Motherson Sumi Systems with a price target of Rs 252.

“In India, there will likely be a more rapid race amongst carmakers to differentiate their vehicles by continuously adding new features. Thus, Motherson Sumi will keep growing well ahead of the industry. MSS management has utilised the lockdown well to structurally reduce costs, which should also benefit medium-term margins,” Nomura said.