This stock has zoomed 300,000% in 25 years

Leading auto component manufacturer, Motherson Sumi, completed 25 years of its listing on the BSE on September 09. The company manufactures automotive wiring harnesses, mirrors for passenger cars and supplies plastic components and modules to the automotive industry.

To commemorate its 25 years of listing, the company's board has recommended the issue of bonus shares in the ratio of 1:2 – that is one share as bonus for two shares held by investors – subject to regulatory approvals. 

The stock which listed at Rs 41 on the BSE 25 years ago, has zoomed a whopping 322,881 per cent since then (adjusted for all bonuses, dividends and splits), a company release said Wednesday.

Over the past 25 years, the company has made 17 acquisitions, including Visiocorp (March 2009), Peguform (November 2011), Stoneridge Inc – Wiring Harness Business (August 2014), Scherer & Trier (January 2015), PKC Group (March 2017), Reydel Automotive (August 2018).

"The company has done phenomenally well over the years. Most companies that diversified have not been able to do well as has Motherson Sumi. The rise in the stock price since listing is well deserved. That said, the valuations do look a bit stretched now," says G Chokkalingam, founder and managing director at Equinomics Research.

Despite the valuation concerns in the immediate term, analysts say the company remains in a strong fundamental footing and should do well going ahead. The recent acquisitions, especially Reydel Automotive, should aid financial performance.

“Recently commissioned and upcoming plants, coupled with the company's robust order book, could sustain top-line growth in the coming quarters. Moreover, the integration of Reydel Automotive (an interior components and modules maker; beginning Q2 FY19) could help diversify earnings,” suggests a recent Standard Chartered report on the company.

Motherson has a good growth record. In the past 10 years, sales have grown at a compounded growth rate (CAGR) 21.50 per cent. The CAGR profit growth during this period stands at 32.73 per cent. RoE (Return on equity) for the last 10 and five years stands at 22.15 per cent and 20.87 per cent, respectively. The company had reported a 59 per cent year-on-year (y-o-y) growth in net profit at Rs 443.07 crore for the April – June 2018 quarter.

However, higher input costs, possible delays in commissioning of capacities, high leverage, rise in competition and foreign exchange risks are the key headwinds for the stock.

Edelweiss, for instance, has slashed FY19/FY20E EPS by 10 per cent /7 per cent to Rs 10.6/13.9 factoring in slower revenue growth and lower margin. The brokerage, however, has maintained ‘BUY’ rating on the stock with the target price of Rs 349.