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Motherson Sumi: Capacity build-up, sound order book indicate strong growth

The sustained efforts of car manufacturers to surmount the difficult market conditionsthrough new launches and major facelifts for existing models have augured well for Motherson Sumi, a leading auto ancillary supplier, as it reported a healthy set of financials in FY13.

The company's strong presence in both India and the global markets helped it register a 72% growth in consolidated revenues and an equally strong growth in its consolidated bottom line for FY13 over the previous fiscal.

The consolidated EBITDA (earnings before interest depreciation and tax) margins for the year, however, have remained flat at about 7% due to the impact of 
foreign exchange difference and a rise of about 120 basis points in employee cost in relation to sales over the previous year.

Margins, however, have improved on a standalone basis by about 300 basis points to 17.9% supported by a decline in both raw material cost as well as other expenditure in relation to sales. While the company has not given any guidance with about the sustainability of these margins, the capacity build-up and a strong order book indicate sound growth.

Motherson Sumi, a complete solution provider for new car models - right from wiring harness to mirrors to plastic moulding - to 
Hyundai and Maruti SuzukiBSE -1.02 % in India, is expected to benefit in the next couple of years from the slew of new launches lined up by these carmakers.

The company has spent close to 2,200 crore in capital expenditure over the past couple of years and will spend another 700-odd crore this fiscal in capacity expansions.

According to analysts, it currently has an order backlog of close to Euro 3.8 billion, indicating not only strong earnings visibility but also a focus on aggressive capacity ramp-up in FY14, which in turn will improve its return on capital employed. Investor confidence in the company could well be because of its strong geographical business diversification.

The FII (foreign institutional investor) holding in the company is at an all-time high of over 15% and the stock price has surged by over 95% in the past one year to 215.5 on the back of its strong business growth. At its current price, the stock trades at a trailing consolidated price to earning (P/E) multiple of over 27, which appears to be at a premium.

Analysts expect the company to do well going forward not just in India but also in the overseas market. 
Motherson SumiBSE 2.53 % derives more than 80% of its revenues from the global markets with Germany being its major market. It is, in fact, one of the key suppliers toAudi and Volkswagen. Its other major customers include key players such as Hyundai, Toyota, Nissan and Maruti Suzuki.