Amara Raja Batteries, Coal India, Engineers India, IDFC, Motherson Sumi, SBI

Amara Raja Batteries, Coal India, Engineers India, IDFC, Motherson Sumi, SBI

Motherson Sumi

Motherson Sumi

Subros, Motherson Sumi, Godawari Power, Graphite India

Subros, Motherson Sumi, Godawari Power, Graphite India

Motherson Sumi

Motherson Sumi

Praj Industries, IPCA Labs, Motherson Sumi, Mahindra Holidays and Resorts

Praj Industries, IPCA Labs, Motherson Sumi, Mahindra Holidays and Resorts

Motherson Sumi Systems

Motherson Sumi Systems

Motherson Sumi Systems

Motherson Sumi Systems

Annual Report - Motherson Sumi Systems - 2008-2009

MOTHERSON SUMI SYSTEMS LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Your Directors have the pleasure in presenting the 22nd Annual Report
together with the audited accounts of the Company for the financial year
ended 31st March, 2009.

Financial Results

The summarized financial results for the year ended 31st March, 2009 and
for the previous year ended 31st March, 2008 are as follows:

(Rs. in Million)
Year ended Year ended
31.03.2009 31.03.2008

Gross sales 14429 15156
Net sales 12949 13031
Other Income 372 447
Profit before depreciation,
interest and tax 1689 2361
Less: Depreciation 545 500
Less: Interest (net) 291 219
Profit before tax 853 1642
Less: Provision for taxation 157 360
Profit after tax 696 1282
Add: Balance brought forward 1597 1127
Profit available for appropriation 2292 2409

Motherson Sumi Systems

Motherson Sumi Systems

Motherson Sumi

Investors with a long-term perspective can consider exposure to the Motherson Sumi stock. At the current market price of Rs 80, the stock trades at a price-earnings multiple of about 15 (estimated FY-10 earnings). Though this valuation may seem expensive when compared to other auto component players, the company’s market leadership position in the wiring harness segment and focus on the supply of higher margin assemblies and modules justifies the premium valuation the company enjoys.

This, along with the foray into the non-auto segment provides visibility to the company’s earnings prospects in the next few years.
Higher volumes, better realisations expected

Motherson Sumi has around 65 per cent share in the domestic market in supplying wiring harness, high tension cords, wires and fuses to auto makers such as Maruti, Hyundai, Honda, Toyota, M&M and General Motors.

The steady demand for passenger cars, despite a slowdown in the two-wheelers and commercial vehicles segment, capacity expansion and the planned introduction of models by Maruti and Hyundai, augur well for the company as it would lead to strong volume growth in the next few years.

0Both carmakers have also made India the global manufacturing hub for small cars. Besides, with Nissan and Volkswagen foraying into the Indian market, the company is likely to supply to them as well, given the existing relationship of its collaborator, Sumitomo Wiring Systems (SWS), with these companies.

The company will also benefit from the trend of automakers introducing new safety and comfort features, as these features demand more complex wiring harnesses. This value-addition, in turn, may lead to better realisations for the company.

Apart from supplying domestically, the company has strong export sales, supplying wiring harness to motorcycle (30 per cent market share), tractor and off-road vehicle manufacturers in Europe. It also serves as a sourcing base for its collaborators.

Supplies to SWS are expected to further strengthen in the coming years as Motherson Sumi has already entered into a joint venture with SWS-Sharjah to service SWS’s European clients. The group is also hoping to locate about 85 per cent of its wiring harness production outside of Japan from 2008 and, India, as a preferred low-cost destination, may benefit from this.
Likely margin boost from polymers

In a bid to expand its product portfolio, the company also supplies injection and blow moulded components and assemblies and integrated modules such as door trims to auto makers. The increasing use of plastic content in cars so as to reduce costs and weight will translate into good business for this division. This bodes well for margin expansion as well, as supply of assemblies and modules bring in higher margins than components. The polymers division now accounts for about 25 per cent of the revenues.
More content per car

The company has a policy of increasing its content supplied per car by entering into joint ventures (JVs) with leading Tier-I suppliers. For the manufacture of rubber parts, the company is in a JV with WOCO of Germany. About 10 per cent of the revenues now come from the supply of rubber components.

Similarly, the company, last year entered into a JV with Calsonic Kansei, a global component manufacturer specialising in climate control systems and power-train cooling modules.

This JV will initially manufacture automotive AC units for Japanese car manufacturers in India. Production is slated to start in 2009.

Such a growth strategy will give the company access to latest technology, expand its clientele and bring more business from existing clients. This strategy is in sync with the company’s plans to emerge as a complete, full systems solutions provider.
Diversification moves

To further shield itself from any slowdown in the auto sector, the company has entered into a joint venture with Balda AG of Germany to manufacture components for mobile handsets in India.

The company is also manufacturing Aerobin, a garbage disposal machine for the Australian market. This diversification primarily arises from the company’s core capacity to manufacture plastic components. But the contribution to revenues from these forays remains to be seen.
Financials

For the quarter-ended June 2008, net sales grew by 15 per cent to Rs 346 crore compared to the same period a year ago. While domestic sales grew by 10 per cent, exports rose by 32 per cent.

Being the market leader, the company has been able to pass on input cost increase to its customers, keeping the impact on profits minimal. But what has actually pulled down the net profits from about Rs 30 crore in the June 2007 quarter to Rs 12.7 crore in the current quarter is a forex loss of Rs 25 crore on account of restatement of liabilities.

Stocks you can pick up this week

Motherson Sumi System
Research: Merrill Lynch
Rating: Buy
CMP: Rs 96

Merrill Lynch initiates coverage on Motherson Sumi Systems (MSSL) with a ‘buy’ rating due to the following reasons: (1) 23%+ compounded annual growth rate (CAGR) in EPS during FY07-FY10E and sustainability of 20%+ earnings growth over a longer period; (2) 560 bps expansion in return on equity capital (RoCE); and (3) new business ventures.

Expansion of the rubber components business following the recent acquisition of Empire Rubber in Australia and beginning of commercial production of mobile phone plastics parts business in H2 FY08 are the key growth drivers, apart from the 22% CAGR in wiring harness revenues. There is significant possibility of earnings surprise on account of: (1) management guidance of 43% CAGR in earnings being significantly higher than expectations; and (2) likely benefit of 18% fall in copper prices in the next six quarters, compared to Merrill Lynch’s assumption of flat prices. The stock is trading at 11.97x FY09E EV/EBITDA — a discount of 15% and 31%, respectively, compared to Mico and Cummins India, despite better growth prospects and good track record. At management-guided EPS of Rs 9.8 in FY10E, the stock trades at 9.7x earnings.

Sesa Goa
Research: Buy
Rating: Goldman Sachs
CMP: Rs 2,111

GOLDMAN Sachs initiates coverage on Sesa Goa with a ‘buy’ rating. Sesa Goa is India’s largest exporter of iron ore in the private sector and is a direct play on iron ore price negotiations. With sustained tightness in the iron ore market, it will be a direct beneficiary of higher iron ore prices. High margins, attractive returns, debt-free balance sheet, strong free cash flow generation and cash pile of Rs 220 per share are added positives. The non-iron ore businesses will benefit due to a robust outlook on pig iron and met coke prices. Reining in logistics costs will remain a key focus area. Additionally, after the completion of the ongoing open offer, the new promoters, Vedanta Resources, may deploy surplus cash reserves. Sesa Goa is likely to deliver 40% earnings CAGR over FY07-FY09E on the back of a bullish iron ore price outlook and modest volume growth. Potential announcements on strategic use of the cash pile or expansion plans, post completion of the open offer by Vedanta Resources, can provide upside triggers. At 2.8x one-year forward EV/EBITDA — which is at a 50% discount to global mining companies — the stock is attractively valued.

Tata Motors
Research: Citigroup
Rating: Buy
CMP: Rs 694

Citigroup has put a ‘buy’ recommended on Tata Motors. The management guidance points to a modest revival in truck sales in H2 FY08E, which implies that overall sales for FY08 will be flat or may register modest growth. Truck operators’ profitability remains healthy, despite rise in interest rates. Freight rates continue to remain stable. The company will deploy Rs 8,000 crore over the next three years to launch new platforms in passenger cars and trucks.

The small car remains on schedule and will be launched in mid-CY08 (H1 FY09E). The management has said Tata Motors will start the process of demerging its subsidiaries by end FY08E, but this is still at a nascent stage. Brand, technology and markets are the key decision variables. Cost pressures (steel accounts for 45% of input costs) will continue to affect margins. Cost reduction exercise is nearly complete — the company has achieved Rs 970 crore of its stated Rs 1,000-crore cost-cutting exercise. Hikes in CV prices (~1-1.5%) undertaken in early FY08 will mitigate (but not offset) the impact of cost pressures.
Binani Cement
Research: JP Morgan
Rating: Overweight
CMP: Rs 79

JP Morgan initiates coverage on Binani Cement (BCL) with an ‘overweight’ rating. BCL appears to be at the cusp of aggressive volume growth. Cement production is likely to witness a CAGR of 44% over FY07-09. Increasing volumes, coupled with robust prices (in the current year) should drive 44% EBITDA growth and 40% EPS growth in FY08, as per JP Morgan’s estimates. In FY09, aggressive volume growth is likely to help offset the negative impact of an estimated 6% YoY decline in cement prices. A near 10% CAGR in domestic demand and benefits of consolidation should provide a higher floor to domestic prices, relative to previous cycles. BCL’s valuation looks compelling — the stock is trading at a near 40% valuation discount to mainstream cement players.

IDBI Bank
Research: ICICI Direct
Rating: Outperformer
CMP: Rs 131

ICICI Direct initiates coverage on IDBI Bank with an outperformer rating. IDBI Bank has transformed itself from a development financial institution (DFI) to an active participant in the booming banking and financial services space.

The amalgamation of United Western Bank with IDBI Bank has given the latter the much-needed branch network to enhance its retail presence. This, coupled with unlocking of value in its investments, is expected to lead to a surge in earnings. ICICI Direct expects earnings to witness a CAGR of 19% over FY07-09E to Rs 885 crore. IDBI Bank has a huge investment portfolio of quoted and unquoted equity stocks. It can unlock the value from these stocks and boost its profitability.

The value of the quoted and unquoted equity book is Rs 52 per share of IDBI Bank. The bank is expected to improve its core business gradually with net interest margins (NIMs) expanding from 0.48% in FY06 to 0.74% in FY07 and further to 1.07% by FY09E. At the current price around of Rs 130, the stock is trading at 1.3 its FY09E adjusted book value (ABV) and 10.6x its FY09E EPS of Rs 12.2. Based on a theoretical book value multiple of 0.9x its FY09E ABV, the value of its core banking business comes to Rs 87 per share. Its huge investment portfolio is valued at Rs 52 per share and subsidiaries at Rs 17 per share.

Godavari Chemicals & Fert
Research: IDBI Capital
Rating: Buy
CMP: Rs 129

Godavari Chemicals and Fertilizers — promoted jointly by Andhra Pradesh State Co-operatives (APSC) and the Indian Farm and Fertilizer Co-operative (IFFCO) — is one of the frontline players in the fertiliser segment in the South. It is now a part of Chennai-based Murugappa group, which acquired the stake of the Andhra Pradesh government in the process of disinvestment through Coromandel Fertilizers. Godavari is one of the leading producers of DAP and has a market share of 9% across India, while it has a 73% share in Andhra Pradesh.

During FY07, it increased the sale of traded products like water-soluble fertilisers, micronutrients and G-Sulphur. It has an approximate capacity of 1.2 million metric tones (mt), with a proximity to seaport and good infrastructure. Production during FY07 was highest at 11.35 lakh tonnes, when the average output increased to 72 mt per hour against 65 mt per hour. However, production was hit due to constraints of phosphoric acid supply. The company will expand its capacity by 4.25 lakh mt by June ’09. It has also completed construction of 10,000 mt atmospheric ammonia at Kakinada. Godavari Chemicals has put up a good show for Q1 FY08 with regard to operating and net profits. Its revenue, at Rs 17.3 crore, was down by 35% YoY. PAT was Rs 1.3 crore, against a loss of Rs 40 lakh in the year-ago period. The stock is currently trading at 6x its trailing 12 months EPS of Rs 20.65.

SAIL, Omax Auto, Jyothi Structures, BHEL, Motherson Sumi, India Technicals

Angel on SAIL

Better-than-expected Q4FY2007 performance: Public sector steel major, SAIL, reported a better-than-expected performance for the quarter ended March 2007 (Q4FY2007). It reported a yoy Topline growth of 15.7% to Rs10,385cr (Rs8,980cr). This was primarily led by higher realisations even as volume sales declined during the quarter. It must be noted that the company is already operating at around 119% capacity utilisation, which leaves little room for volume-led growth until new capacities come onstream.

At the CMP, SAIL trades at 11.8x FY2009E EPS, 6.8x EV/EBITDA and P/BV of 2.3x. Considering current valuation of the stock and the outlook in the medium-term, we maintain our Neutral view on the stock.

Angel on Omax Auto

In line Q4FY2007 results: In Q4FY2007 the company’s Net Sales grew by 27.6% yoy Rs181.2cr. The company sustained its margin improvement achieved in 9MFY2007 on the back of a lowered cost base. Operating Profit grew 59.3% yoy to Rs16.3cr. Net Profit grew 116% yoy to Rs8.1cr mainly on account of an 88.2% jump in Other Income. Omax has lowered its operating cost base over the last two quarters and will further benefit from partial captive sourcing of steel and higher capacity utilisation at its Bangalore and Binola plants.

Valuation: At the CMP, the stock trades at 7.3x FY2008E and 6.5x FY2009E Earnings. It appears very attractive at EV/EBIDTA of 4.7x FY2008E and 3.7x FY2009E. We maintain a Buy on the stock with a Target Price of Rs105.


Angel on Motherson Sumi

Consolidated Performance: Motherson Sumi Systems (MSSL) reported Net Sales of Rs462.7cr for Q4FY2007 as against Rs305.4cr in 4QFY2006. The results are not exactly comparable with the corresponding quarter of last year, as Q4FY2007 results include Motherson Advanced Polymer (MAPL) numbers, a 100% subsidiary amalgamated with MSSL with effect from February 1, 2006. OPM, for the quarter, was flat at 16%. Net Profit was Rs45.7cr (Rs42.2cr).

MSSL is a leader in wire harnessing and controls over 65% of the domestic passenger car market. The company is now focusing on the supply of higher level assemblies and modules where the Margins are comparatively higher. The company is also increasing content per car to diversify its product portfolio. MSSL is laying emphasis on its global product plan (GPP) wherein it would enter into JVs with leading tier-I suppliers to upgrade its technology base and increase clientele. MSSL targets to achieve 60% of consolidated turnover from overseas clients. The company expects to continue exploring opportunities in the non-automotive segments, which contributed 15.8% to FY2007 consolidated Revenue compared to 13.8% in FY2006. Increased
share of non-automotive segment is expected to help the company de-risk its business.

We remain positive on the company. We believe MSSL will grow at a CAGR of around 30% over the next two years. We upgrade our consolidated EPS for FY2008E and FY2009E to Rs6.9 and Rs8.4, respectively. At the CMP, the stock trades at 20.4x FY2008E and 16.6x FY2009E consolidated earnings. We maintain a Hold on the stock with a Target Price of Rs130.


Angel on BHEL

Net Sales surge: For Q4FY2007, Bharat Heavy Electricals (Bhel) reported a strong yoy growth of 25.5% to Rs6,919.7cr (Rs5515.7cr). For FY2007, the company reported growth of 29.7% to Rs17,237.5cr (Rs13,289.28cr). This was expected FY2007 being the last year of the Tenth Plan.

Strong Order Book: Bhel clocked a sharp increase in order inflow of more than 88% (5%) to Rs36,300cr (Rs1,9318cr). In absolute terms, order inflow increased by around Rs17,000cr as against a relatively moderate increase of Rs2,650cr in turnover has resulted in an unexecuted order book of Rs55,000cr, an increase of 47% (18%). Of this, the power segment, which accounts for more than 70% of the company's revenues, contributed Rs27,700cr with orders for nearly 9,900MW of capacity being booked during the year. Apart from this, transmission sector orders doubled to Rs1,170cr. FY2007 has been a significantly better year than FY20, in terms of the order intake and order book position, which had grown at a modest rate of 5% and
18% only in FY2006.

Bhel has grown at a CAGR of more than 25% in terms of sales over the past three years. With significant growth in sales, and fixed cost getting spread over a larger base, profits have risen sharply by around 43%. The growth in sales came on the back of a strong order book and government initiatives in the power sector. Going ahead, we expect a slow down in order book to slowdown as there have been issues regarding delays in execution, capacity limitations of the company and the government requires faster execution of the projects to meet the targets set for the Eleventh Plan. The Central Electricity Authority (CEA) had undertaken assessment of preparedness of Bhel to meet the capacity requirement of the power sector during the Eleventh Five Year Plan. The report stated that while some of the delays in the Tenth Plan were on account of state power utilities, major delays have been attributed to Bhel -- “major delays are attributable to Bhel”. Hence, the Ministry of Power has held Bhel responsible for much of the delays in the Tenth Plan, which led to a shortfall of nearly 15,000MW in the period.
At the CMP, the stock trades at 22.2x and 18.2x FY2008E and FY2009E EPS. With valuation stretched and sustained earnings momentum also factored in, we remain Neutral on the stock.


ABN Amro Technicals

The broader indices namely BSE Midcap and C NX 500 are trading near their weekly resistance levels. However, the BSE Smallcap index seems to have some more steam left on the upside. All the major sectoral indices namely, Auto, Capital Goods, Consumer Durables, Healthcare, Oil & Gas, PSU and Bankex are trading near their medium term resistance levels. However, IT Index is trading near the lower end of its channel which suggests the fall in the sector is likely to get arrested in the short term.
The FMCG Index and the Metal Index are also showing some strength in the near term.
To sum it up, the broader indices and major sectoral indices are near their strong resistance levels, after the recent up move. Therefore caution and some profit booking is advised in the short term.

BSE Midcap Index is trading near its weekly trend line resistance of 6187 and 6314. Sustaining above 6314 on a weekly basis can take the index to 6600. On down side support is at 5752.

BSE Small Cap Index faces resistance at 7510; currently the index is in mid way suggesting that it can still witness some up move. Support comes at 6971 and 6815 thereafter.

CNX IT index is trading near its lower band of long term channel hence the chance of bounce back is not ruled out. It needs to sustain and make a good base around 5060, from where it can rally to levels of 5900. In case support is broken on monthly basis it could be headed towards 4500.


ABN Amro on Jyothi Structures

Strong sector growth outlook: The transmission business has high visibility over the next few years, with a continuous focus on improving the power infrastructure in the country. Projects such as Accelerated Power Development and Reforms Programme (APDRP), Rural electrification under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) and measures to reduce Aggregate Technical & Commercial (AT&C) losses by upgrading the Transmission & Distribution (T&D) infrastructure would drive demand for the services rendered by the transmission companies. An investment of Rs4270bn is envisaged during the 11th 5 Year Plan on various schemes in the T&D sector.

Valuation: JSL’s revenues and PAT are estimated to grow at a CAGR of 33% and 51% between FY07- FY09. At the CMP of Rs185, JSL trades at 17.3x FY08F EPS of Rs10.7 and 11.8x FY09F EPS of Rs15.7. We reiterate our Buy call on JSL, given the high earnings visibility for the sector, and greater comfort over management

Edelweiss - Motherson Sumi Systems Limited -(CMP INR 105, Market cap INR 24.5 bn , Not Rated) -Visit Note

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