InvestorQ : How do you see Motherson Sumi as a stock for the long term?
Rutuja Nigam made post

How do you see Motherson Sumi as a stock for the long term?

2 years ago

The stock has been in the doldrums for a long time as its client base for the principal auto ancillary business has bene under stress for a very long time. Auto sector, not only in India, but across the world have been seeing weak demand and that has hit India’s largest auto ancillary company.

However, there have been some positive developments in terms of a medium to long term restructuring that the company has undertaken. That is evident from the fact that Motherson Sumi touched a 52-week high on the NSE during the current week.

The company recently unveiled a 5-year restructuring plan that would serve to prop up the sales revenues of Motherson Sumi to $36 billion by FY25. Normally, the company has provided aggressive 5-year guidance and has always been successful except for the 2015-2020 time frame; when it fell short.

But there are some other interesting changes on the anvil as the company projects that nearly 25% of its revenues by 2025 would come from non-auto business. That should help to diversify risk of over dependence on auto sector. Motherson Sumi also plans to achieve 40% ROCE in the coming years.

The most interesting part of the story is the 3CX10 program which Motherson Sumi is currently implementing across the company. This program stipulates that no customer, country or component; representing the 3 Cs, shall account for more than 10% of total business by 2025.

The third major issue that Motherson will address apart from diversification and ROCE is the issue of debt. Even as Motherson continues its inorganic growth, the company wants to keep a discipline of not allowing the debt / equity ratio to cross 2.5X to keep financial risk in check. In terms of business mix, logistics and aerospace are 2 new areas MSSL is looking at.