Motherson Sumi nears 52-week high after it unveils 5-yr restructuring plan

Shares of Motherson Sumi Systems (MSSL) advanced 5 per cent to Rs 146.30 on the BSE in the intra-day trade on Monday after the company outlined its next five year plan, Vision 2025. The stock of the auto ancillary company was trading close to its 52-week high level of Rs 151 touched on January 9, 2020.

At the analyst meet held recently, Motherson Sumi Systems said that it is targeting $36 billion in group revenues by FY25E, including 25 per cent contribution from non-automotive space. It also aims to be highly capital efficient with a targeted group RoCE of 40 per cent. Other ambitions outlined included 40 per cent consolidated dividend payout ratio and continued business de-risking via 3CX10 i.e. no component, country or customer to form more than 10 per cent of revenues.

"The ongoing restructuring exercise should result in a reduction in Sumitomo's stake and allow MSSL to pursue acquisition opportunities more aggressively. Acquisitions are expected to be funded by free cash flows and debt/equity infusion. Net debt/EBITDA upper limit has been set at 2.5x vs. FY20 level of 1.3x," analysts at Emkay Global Financial Services said in its report.

The business situation continues to improve with growth in underlying segments and a healthy order-book. Utilization levels have increased to 75 per cent in 80 per cent of global plants. The increase in content per vehicle continues owing to higher electronic content/electrification, light-weighting and premiumization. Our positive view on MSSL is underpinned by its strong management capabilities and expectations of a gradual pick-up in underlying segments, the brokerage firm said.

According to ICICI Securities this is the first time that the company is foraying into non-automotive areas such as logistics, aerospace and healthcare but it would be building upon existing related capabilities such as plastics and wiring harnesses.

"MSSL will continue to hunt for inorganic growth opportunities provided by the post-Covid business environment domestically as well as globally as part of its revenue growth ambition. We are enthused by the company's sustained focus on profitability. With a major part of heavy capex spends behind it, MSSL is well placed to achieve stronger cash generation, going forward, for part funding of its growth plans," the brokerage firm said in a note.

At 01:23 pm, the stock was trading 3 per cent higher at Rs 144 on the BSE as compared to a 0.44-per cent rise in the S&P BSE Sensex. A combined around 18 million equity shares had changed hands on the counter on the NSE and BSE till the time of writing of this report.