Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Samvardhana Motherson International Ltd / Equity Bottom-Up

Motherson Sumi Systems Limited (MSSL), the flagship company of the Samvardhana Motherson Group (SMG) is one of the global solution providers of wiring harnesses, rear view mirrors and interior and exterior modules to the automotive and other industries. Strong growth across the company’s main segments (as displayed below) has placed the company in a strong position.  We believe that the company is likely to see steady growth in both its top line and bottom line, and is on track to achieve its five-year plan ‘Vision 2020’. More clearly, this is MSSL’s fifth five-year plan set in 2015, which aims to achieve a revenue target of USD18bn by FY2020E (USD5.5bn in FY2015). The target plan also includes a target ROCE and a dividend payout of 40% (26% and 37% respectively in 2015) and an aimed level of diversification in customers, content, and countries (3CX15- no single country, customer or content should account for more than 15% of total turnover). The company aims to achieve its target via organic growth (ramping up production in existing facilities alongside the growing and healthy order book) and inorganic growth (almost 19 acquisitions done, with the latest one being PKC). Will these steps help MSSL achieve its aggressive revenue target? Will the growth come at the cost of profitability? Does the stock seem overvalued? We believe that the shares seem fairly valued, trading at a FY1 PE of 31x, in line with peer companies. We believe the potential growth of the company is factored in the stock price. Main Segments of Business Operation as of FY03/2017<table class="table table-striped"><tbody><tr><td style="width: 202px;">Segment</td><td style="width: 527.333px;">Description</td><td style="width: 114.667px;">% of revenue</td></tr><tr><td style="width: 202px;">MSSL Standalone</td><td style="width: 527.333px;">The wiring harness and polymer parts segment which is operated by the parent entity in India</td><td style="text-align: right; width: 114.667px;">15%</td></tr><tr><td style="width: 202px;">Samvardhana Motherson Reflectec(SMR)</td><td style="width: 527.333px;">Rear view mirrors segment operated by Samvardhana Motherson Automotive System Group BV (SMRP BV), subsidiary of the company</td><td style="text-align: right; width: 114.667px;">28%</td></tr><tr><td style="width: 202px;">Samvardhana Motherson Peguform(SMP)</td><td style="width: 527.333px;">Interior &amp; Exterior Modules, also held through SMRP BV</td><td style="text-align: right; width: 114.667px;">52% </td></tr><tr><td style="width: 202px;">Other businesses</td><td style="width: 527.333px;">Operated by company through other subsidiaries overseas and joint ventures</td><td style="text-align: right; width: 114.667px;">5%</td></tr></tbody></table><div style="text-align: left;" class="content-caption"> Source: Company Disclosures</div>

Motherson Sumi Systems Limited (MSSL), the flagship company of the Samvardhana Motherson Group (SMG) is one of the global solution providers of wiring harnesses, rear view mirrors and interior and exterior modules to the automotive and other industries. Strong growth across the company’s main segments (as displayed below) has placed the company in a strong position.  We believe that the company is likely to see steady growth in both its top line and bottom line, and is on track to achieve its five-year plan ‘Vision 2020’. More clearly, this is MSSL’s fifth five-year plan set in 2015, which aims to achieve a revenue target of USD18bn by FY2020E (USD5.5bn in FY2015). The target plan also includes a target ROCE and a dividend payout of 40% (26% and 37% respectively in 2015) and an aimed level of diversification in customers, content, and countries (3CX15- no single country, customer or content should account for more than 15% of total turnover). The company aims to achieve its target via organic growth (ramping up production in existing facilities alongside the growing and healthy order book) and inorganic growth (almost 19 acquisitions done, with the latest one being PKC). Will these steps help MSSL achieve its aggressive revenue target? Will the growth come at the cost of profitability? Does the stock seem overvalued? We believe that the shares seem fairly valued, trading at a FY1 PE of 31x, in line with peer companies. We believe the potential growth of the company is factored in the stock price. Main Segments of Business Operation as of FY03/2017SegmentDescription% of revenueMSSL StandaloneThe wiring harness and polymer parts segment which is operated by the parent entity in India15%Samvardhana Motherson Reflectec(SMR)Rear view mirrors segment operated by Samvardhana Motherson Automotive System Group BV (SMRP BV), subsidiary of the company28%Samvardhana Motherson Peguform(SMP)Interior &amp; Exterior Modules, also held through SMRP BV52% Other businessesOperated by company through other subsidiaries overseas and joint ventures5% Source: Company Disclosures

First Look at MSSL: Aggressive Growth Strategies with No Significant Upside

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Japan

SUZUKI CO., LTD. manufactures electronic component for communication devices, office automation equipment, and Integrated Circuits.  The Company's products include connector contacts, lead frames, and precision press dies.  Suzuki has its associated company in China.

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Suzuki Co Ltd (6785 JP)

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