MOTHERSON SUMI

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Motherson Sumi Systems (MSSL) offers a single window to play the emergingglobal trend of premiumisaton and high growth in China/ India PV industry.MSSL has an impressive track record of managing cost/ quality and synergyacross businesses, as reflected in turnaround at Samvardhana MothersonReflectec (SMR) and Samvardhana Motherson Peguform (SMP). Going forward,we see higher wallet share, premiumisation of PV industry and outperformanceof luxury cars driving 16% revenue CAGR for MSSL over FY14-16E. Marginexpansion at SMP and SMR would drive earnings CAGR of 32%. We initiate

coverage on MSSL with Outperformer and a 12-month price target of Rs274.

Premiumisation and increasing wallet share key growth drivers: The distinct shiftin India PV market towards sedans/ SUVs (53% share in FY13 from 47% in FY08),outperformance of luxury cars globally as also increasing content per car are likelyto be the key growth drivers for MSSL. Adoption of modular platform strategy byOEMs further enhances volume opportunity and visibility for MSSL. We expect17%/ 16%/ 14% revenue CAGR in India business/ SMR/ SMP for FY14-16.

China, higher utilization and synergy benefits to drive profits: Higher share ofhigher-margin China business, in-sourcing and better utilization in Hungary/ USare key margin drivers for SMR. For SMP, profitability will get a boost from higherutilization (order backlog of EUR4bn), including at a few loss-making plants. Wesee 32% CAGR in consolidated PAT (47%/ 83% CAGR in SMR/ SMP) for FY14-16E.

Outperformer with 18% potential upside: We have valued MSSL on SoTP, andassign a target EV/ EBITDA of 11x (FY16E) to standalone business and 6x/ 6x/ 7x toSMR/ SMP/ other subsdiaries. We initate coverage on MSSL with Outperformerand a target price of Rs274. Delayed recovery in Europe/ India, slowdown in Chinaand expensive acquisitions remain key risks to our call.

Pramod Kumar

[email protected]

91-22-6622 2562

For Private Circulation only.

Important disclosures appear at the back of this report”

SEBI Registration Nos.: INB23 12914 37, INF23 12914 37, INB01 12914 33, INF01 12914 33.

Jay Kale, CFA

[email protected]

91-22-6622 2529

Price performance – relative and absolute

(%) 3-mth 6-mth 1-yr

Motherson Sumi 24.1 75.0 79.7BSE Sensex 4.4 13.8 12.9

80

110

140

170

200

Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14

Motherson Sum i Sens ex

Key valuation metrics

As on 31 March FY12 FY13 FY14E FY15E FYNet sales (Rs m) 147,766 253,124 308,157 361,878 416,477

Adj. net profit (Rs m) 2,596 4,445 7,061 12,822 16,717Shares in issue (m) 882 882 882 882 882

Adj. EPS (Rs) 2.9 5.0 8.0 14.5 19.0% change (33.6) 71.2 58.9 81.6 30.4

PE (x) 79.0 46.1 29.0 16.0 12.3Price/ Book (x) 8.6 7.6 5.7 4.2 3.1EV/ EBITDA (x) 27.6 16.5 9.3 6.4 5.0RoE (%) 12.3 17.6 22.5 30.4 29.3RoCE (%) 10.2 10.7 22.8 31.8 36.3

Source: Company, IDFC Securities Research

INSTITUTIONAL SECURITIES

INDIA RESEARCH

Motherson SumiWorld is the canvas

7 March 2014

BSE Sensex: 21920

Sector: Auto Ancillaries

Stock data

CMP (Rs) 232Mkt Cap (Rsbn/USDm) 205 / 3.4

Target Price (Rs) 274Potential from CMP (%) +18

Earnings change (%)FY15E NAFY16E NA

Bloomberg code MSS IN1-yr high/low (Rs) 250/1166-mth avg. daily volumes (m) 0.87

6-mth avg. daily traded value(Rsm/USDm) 166.8 / 2.73

Shares outstanding (m) 882Free float (%) 34.4Promoter holding (%) 65.6

OUTP R ORM R



Motherson Sumi

2 | IDFC SECURITIES 7 March 2014

ContentsWorld is the Canvas....................................................................................................... 3

Investment Argument ................................................................................................... 4

One-stop-shop to play emerging trends in PV industry ................................................. 4

Increasing wallet-share, premiumisation driving growth............................................... 6

SMR/ SMP to drive consolidated margins ..................................................................... 9

Financial Analysis: 32% earnings CAGR over FY14-16E .......................................... 12

Valuations & view ....................................................................................................... 13

Key Risks..................................................................................................................... 14

Scenario analysis.......................................................................................................... 15

Sensitivity analysis....................................................................................................... 16

Annexure........................................................................................................................ 17

Standalone business ..................................................................................................... 17

SMR............................................................................................................................. 19

SMP ............................................................................................................................. 20



Motherson Sumi


W ORLD IS THE CANVAS


Diversified revenues across products, geographies and OEMs

Key financials (FY14-16E)

Motherson Sumi Systems (Revenue profile; FY13)

49.2

26.6

19.6

4.6

Product-wise revenues

Others

Wiring harness

Mirrors

Modules, polymerprocessing and tooling

Geography-wise revenues

Others

China

Europe

India25

20

12

76642

18

Client-wise revenues

Others

GM FordRenault NissanMaruti

Hyundai

Seat

VW

German luxurymanufacturers

Standalone56.9%

SMR19.5%

SMP16.7%

Other subsidiaries6.9%

Target price contribution from segments

17 21 24

16

5346

14

36

83

0

25

50

75

100

Revenue EBITDA PAT

Standalone SMR SMP(%)

(%)

• Wiring harness• Polymer components• Rubber/metal machined and

other products

• Interior/ Exterior mirror• Camera based blind spot

detection systems• Mirror integrated light modules

• Wiring harness• Polymer components• Rear view mirrors• Bumper and interior modules

• Bumper modules• Front end, Interior modules• Material substitution and light

weighting technologies

Standalone

17%

SMR 27%SMP 50%

Others

6%

(MSSL acquiredSMR in Mar

09 forEUR 25m)

(MSSL acquiredSMP in Nov 11 for EUR

140m)

15

54

9

22

Diversified revenues across products, geographies and OEMs

Key financials (FY14-16E)

Motherson Sumi Systems (Revenue profile; FY13)

49.2

26.6

19.6

4.6

Product-wise revenues

Others

Wiring harness

Mirrors

Modules, polymerprocessing and tooling

Geography-wise revenues

Others

China

Europe

India25

20

12

76642

18

Client-wise revenues

Others

GM FordRenault NissanMaruti

Hyundai

Seat

VW


Standalone56.9%

SMR19.5%

SMP16.7%


Standalone56.9%

SMR19.5%

SMP16.7%


Target price contribution from segments

17 21 24

16

5346

14

36

83

0

25

50

75

100

Revenue EBITDA PAT


17 21 24

16

5346

14

36

83

0

25

50

75

100

Revenue EBITDA PAT


(%)

• Wiring harness• Polymer components• Rubber/metal machined and

other products


detection systems• Mirror integrated light modules

• Wiring harness• Polymer components• Rear view mirrors• Bumper and interior modules

• Bumper modules• Front end, Interior modules• Material substitution and light

weighting technologies

Standalone

17%

SMR 27%SMP 50%

Others

6%

(MSSL acquiredSMR in Mar

09 forEUR 25m)

(MSSL acquiredSMP in Nov 11 for EUR

140m)

15

54

9

22



Motherson Sumi


I NVESTMENT ARGUMENT One-stop shop to play emerging trends in global PV industry, as it has 125

plants across the world that supply components to all major OEMs

Increasing wallet-share through widening product basket (more content percar) and premiumisation of PVs driving growth; expect 16% CAGR over FY14-16

Synergy benefits at SMR/ SMP and increased order intake as also ramp-up inChina expected to drive consolidated EBITDA margins to 11.7% by FY16E

We estimate consolidated earnings CAGR of 32% over FY14-16E; RoCE toinch closer to the targeted 40% by FY16E

Debt reduction and improving margin profile key triggers for stockperformance; Outperformer at an SoTP-based price target of Rs274

One-stop-shop to play emerging trends in PV industry

MSSL offers a unique opportunity to play the global PV industry, wherein vehiclepremiumisation and high growth in China/ India are the emerging trends.Premiumisation in the global PV industry is evident in the fact that luxury carmakers in Europe have shown a CAGR of 14% against 7% CAGR for the global PVindustry over CY09-12. Also, China and India have registered 14% and 15% CAGRrespectively in PV volumes for the period. Further, by taking exposure to thesetrends via MSSL, investors are largely immune to market share race in thesesegments/ geographies.

Diversified revenues with 125 plants; supplier to all major OEMsMSSL’s consolidated revenues are well diversified with Europe contributing ~54%of the total in FY14, India ~15%, China ~9% and other geographies (Americas, Asia

Pac) contributing ~22%. The company has presence across 25 countries with 125manufacturing plants. It supplies to all the major OEMs globally with germanluxury car manufacturers contributing ~25% of revenues. To further diversify therevenue base, MSSL targets to reduce its dependence to not more than 15% ofrevenues from a single customer, single country or a single commodity.

Exhibit 1: MSSL -- segment-wise revenues with key product offerings


A play on luxury cars and

India/ China PV growth

Motherson Sumi Systems (FY13 revenues)

Standalone (17%)• Wiring harness• Polymer components• Rubber/metal

machined and otherproducts

SMR (27%)MSSL Acquired SMR in Mar

9 for EUR 25m


detection systems• Mirror integrated light

modules

SMP (50%)MSSL Acquired SMP in Nov

11 for EUR 14 m

• Bumper modules• Front end, Interior modules• Material substitution and

light weightingtechnologies

Others (6%)• Wiring harness• Polymer components• Rear view mirrors• Bumper and interior

modules

MSSL looks to limit revenueexposure to 15% for each

customer, country andcommodity



Motherson Sumi


Exhibit: 2 Luxury cars contribute ~30% of revenues, aiding mix Product-wise and geography-wise revenue split


Exhibit 3: Present across 25 countries with 125 manufacturing facilities

Source: Company

Master of the ‘inorganic game’MSSL has a proven track record of acquiring and turning around distressed assets(e.g., Visiocorp, renamed SMR post acquisition, and Cross AG selling Peguform,now SMP). In fact, acquisition of SMR and SMP were at the behest of large OEMsthat are always in search of stable and larger component suppliers. MSSL hasamply proved its ability to manage costs and quality, which has helped it attain

scale and improve profitability over the years. This also helps MSSL retaincustomers in difficult times. Consider the following:


25%

VW20%

Seat12%

Maruti6%

Ford4%

GM2%

Others18%

Hyundai7%

Renault Nissan6%

Product-wise revenues % Geography-wise revenues %Modules, polymer 49 India 15processing and tooling

Mirrors 27 Europe 54Wiring harness 20 China 9Others 4 Others 22

Ability to manage costand quality has helped

MSSL gain scale and boost profitability



Motherson Sumi


Exhibit 4: SMR EBITDA margin touches double digits in Q3FY14 SMP EBITDA margin up 550bp in Q3FY14 from 0.4% in Q3FY12


Increasing wallet-share, premiumisation driving growth

The increasing share of SUVs and luxury cars in PV industry globally has put MSSLin a sweet spot. While the company has mangaed to capitalise on thepremiumisation trend, it has also expanded its portfolio to include a wider range ofcomponents for different platforms across geographies (standalone India businessand SMR/ SMP -- global OEMs, especially luxury car manufacturers).

Standalone revenues to log CAGR of 17% over FY14-16E…Standalone revenues (India business) have registered a CAGR of 27% over FY08-13,double the PV industry volume CAGR of 13% over the period. Premiumisation (UV,sedans, and premium hatchbacks outperforming small cars) and increasing walletshare (a higher number of component offerings per car) as also an expected recovery

in domestic PV market (expected in 2HFY15), we believe, will drive 17% CAGR inIndia revenues over FY14-16.

Exhibit 5: MSSL revenue CAGR 2x PV volume growth over FY08-13 Uptrading clearly visible even in a tough environment


24.0 21.5 19.1 18.9 18.2 14.6

29.3 33.7 38.9 39.4 37.332.0

24.7 24.3 22.1 22.1 24.529.6

20.5 19.9 19.6 20.1 23.822.0

0%

20%

40%

60%

80%

100%

FY08 FY09 FY10 FY11 FY12 FY13

Compact hatchback P remium Hatchback Sedans UV+M PV

(15.0)

0.0

15.0

30.0

45.0

60.0

75.0

FY08 FY09 FY10 FY11 FY12 FY13

M SSL revenue gro wth (%) P V pro ductio n vo lume gro wth (%)

PV CAGR (FY08-13) M SSL CA GR (FY08-13)

4.9

3.3

4.9

6.4

5.0 5.0

7.0

8.4 8.6 8.8

10.1

0.0

4.0

8.0

12.0

Q 1 F Y 1 2

Q 2 F Y 1 2

Q 3 F Y 1 2

Q 4 F Y 1 2

Q 1 F Y 1 3

Q 2 F Y 1 3

Q 3 F Y 1 3

Q 4 F Y 1 3

Q 1 F Y 1 4

Q 2 F Y 1 4

Q 3 F Y 1 4

SMR EBITDA margin (%)

0.4

1.6

4.23.7 4.0

3.1

5.5 6.0 5.9

0.0

2.5

5.0

7.5

10.0

Q 3 F Y 1 2

Q 4 F Y 1 2

Q 1 F Y 1 3

Q 2 F Y 1 3

Q 3 F Y 1 3

Q 4 F Y 1 3

Q 1 F Y 1 4

Q 2 F Y 1 4

Q 3 F Y 1 4

SMP EBITDA margin (%)

MSSL has expanded its portfolio to include a wider

range of components fordifferent PV platforms



Motherson Sumi


…with 16%/ 14% CAGR in SMR/ SMP revenuesSMR, headquartered in Germany wherein MSSL has a 47.7% controlling stake, isone of the leading manufacturers of rear view mirrors with a global market share of22%. SMP, 51% held by MSSL (post excerse of put option by PFBeteiligungsverwaltungs for a 16.28% stake), manufactures bumpers, front-end and

interior modules with ~80% of revenues accruing from Europe.

At SMR and SMP, order intake from luxury manufacturers like Audi, BMW,Mercedes and Porsche has gained strong traction in the last few quarters. Notably,BMW and Mercedes are the fastest growing clients. Luxury car manufacturers, towiden their customer base, are launching a slew of smaller luxury cars/ SUVs by

bridging the pricing gap with high-end mass models (see exhibit below). This worksin favour of suppliers as quality and pricing of components in the smaller versionsof luxury brands remain similar to those used in bigger luxury cars/ SUVs. Further,higher contribution of SUVs in the luxury car segment (27.5% of volumes in CY13 vs13.4% in CY08) has been aiding SMR/ SMP’s revneue mix.

Exhibit 6:SUV share in luxury segment going up Entry level luxury cars targeting high-end customers of mass brands


Exhibit 7: Global foray of SMR and SMP (country-wise capacity expansion)


Started in 2012Mexico

South America presence started in 2012Brazil

Mirror and glass manufacturing started in H2FY12.Thailand

Started plant in FY12 it will double central europecapacity. Revenue opportunity of Euro 150m.Capacity utilisation now at 55% vs 30% earlier

Hungary

Central China plant to start in 2014, Beijing and Yancheng started in 2013.

China

Significant plant expansion and second automaticpaint facility in Marysville

USA

SMR capacity expansion over 2012-14

Started in 2012Mexico

South America presence started in 2012Brazil

Mirror and glass manufacturing started in H2FY12.Thailand

Started plant in FY12 it will double central europecapacity. Revenue opportunity of Euro 150m.Capacity utilisation now at 55% vs 30% earlier

Hungary

Central China plant to start in 2014, Beijing and Yancheng started in 2013.

China

Significant plant expansion and second automaticpaint facility in Marysville

USA

SMR capacity expansion over 2012-14

Expansion in Foshan (South China, interiors forpremium car makers) and Beijing to start in 2014

China

Expansion of facilities, houses the largest paintshop for plastics in Europe

Germany

Greenfield expansion for interior and exteriormodules started in 2013

Mexico

Doubling capacity for automated painting of largepolymer parts

Brazil

SMP capacity expansion over 2012-14

Expansion in Foshan (South China, interiors forpremium car makers) and Beijing to start in 2014

China

Expansion of facilities, houses the largest paintshop for plastics in Europe

Germany

Greenfield expansion for interior and exteriormodules started in 2013

Mexico

Doubling capacity for automated painting of largepolymer parts

Brazil

SMP capacity expansion over 2012-14

86.6 84.0 81.0 78.9 75.9 72.5

13.4 16.0 19.0 21.1 24.1 27.5

0%

25%

50%

75%

100%

CY08 CY09 CY10 CY11 CY12 CY13

Sedans/ hatchbacks SUV Higher-end mass Price (GBP) Entry-level Price (GBP)

manufacturer cars luxury carsVolkswagen Jetta 18,075 BMW 1-series 17,775Volkswagen Passat 20,235 Mercedes A-class 20,715Honda Accord 23,195 Mercedes B-class 22,015

Audi A3 22,825BMW 3-series 23,550

Order intake from marqueenames like Audi, BMW,

Porsche and Mercedes hasaccelerated recently



Motherson Sumi


Exhibit 8: Increasing content per car aiding robust revenue growth for MSSL

Source: Company

Platform strategy widens SMR/ SMP’s scopeOEMs are increasingly adopting the platform strategy – similar to Volkswagen’s

MQB (Modularer Querbaukasten) – wherein a single platform has the capability tomanufacture multiple models. SMR/ SMP typically win orders for a particularplatform and, with multiple models launched on a single platform, SMR/ SMP areable to increase their wallet share considerably.

Also, SMR/ SMP are involved with OEMs right from coneptualisation stage of aparticular platform. This strengthens their understanding of the platform anddeepens the relationship with the OEM, which helps them become a preferredsupplier. This is evident in the fact that fresh orders in H1FY14 at SMR/ SMP standat EUR842m/ EUR1.8bn.

These orders would start getting implemented from FY16 and will last for five

years, which implies high revenue visibility for the entities. Outstanding order books of SMR and SMP currently stand at a healthy EUR2bn and EUR4bnrespectively. Over FY14-16E, we expect 16%/ 14% CAGR in revenues of SMR/ SMP.

A single platform capableof making multiple modelshelps increase wallet share

SMR and SMP’s platformexpertise has helped MSSLdeepen client relationships



Motherson Sumi


Exhibit 9: Revenue CAGR of standalone/ SMR/ SMP and consolidated over FY14-16E

17.015.5

13.5

16.2

0.0

4.5

9.0

13.5

18.0

Standalone SMR* SMP* Consolidated

Revenue CAGR (FY14-16E)(%)

Source: Company, IDFC Securities Research; *SMR, SMP revenue CAGR in EUR m

SMR/ SMP to drive consolidated margins

We expect consolidated EBITDA margins to expand 240bp over FY14-16E, to 11.7%.Standalone EBITDA margins are estimated to increase by 150bp to 20.8% in FY16E(20% in FY15E) as premiumisation and an expected recovery in the domestic PVindustry in 2HFY15 would drive utlisation levels higher in this business. However,SMR/ SMP would have a higher contribution in incremental margins. We estimate360bp/ 220bp margin expansion at SMR/ SMP to 13%/ 8% by FY16E.

China and higher utilisation globally key margin drivers for SMRSMR’s 510bp margin expansion, to 10.1%, in last seven quarters has been led bygeneration of new orders from European OEMs (predominantly Audi, BMW andMercedes) and synergy benefits via increased in-house sourcing (e.g. wiringharnesses). We expect EBITDA margins to further improve to 11.5%/ 13% in FY15E/FY16E, closer to the company’s “mid-teen EBITDA margin” target. The key drivers ofmargin expansion include:

SMR has doubled its capacity in USA post setting up a new plant in Michigan.With commercial production expected to commence in FY15, the companyalready has bagged orders from Ford, GM, Chrysler. Higher utilisation in USA,we believe, augurs well for margins.

In China, the company would set up two new plants over the next 12 months,which implies a higher contribution to overall revenues from China. China is byfar the most profitable geography for OEMs, and thereby for ancillarymanufacturers – notably, volume contribution of China for luxury car

manufacturers is 20-30% against profit contribution of 40-50%. SMR targets toincrease its market share in China to 25% in 2017 from 10% currently.

Utilisation rates at SMR’s Hungary plant have been rising consistently (60% inQ3FY14 from 30% in Q1FYFY13) with the company receiving fresh orders fromGerman luxury car brands. Further, SMR’s European units are likely to seemargin improvement with increasing in-sourcing arrangements. The Europeanunits usually buy wiring harness through various vendors, which would bereplaced by in-house sourcing.

SMR is targetingmid-teen level EBITDA

margins

China’s contribution tomargins will increase with

setting up of two new plantsin next 12 months



Motherson Sumi


Turnaround in loss-making plants to boost profitability at SMPSMP has seen substantial improvement in performance at some of its loss-makingplants. For example, SMP’s Brazil plant has now turned profitable from a EUR70mloss in FY13 as the company reworked prices to get incremental orders which led to

better utilisation. SMP has identified five such loss-making plants, and expects them

to turnaround in the near future boosting profitability.

Further, in line with the in-sourcing strategy at SMR, SMP plans to shift to in-sourcing of components. This, we believe, will be margin-accretive for SMP.Margins would get a further boost from the more-profitable new orders and ramp-up in China (see box below). We expect SMP’s EBITDA margins to expand to 7%/8% in FY15E/ FY16E from 3.8%/ 5.8% in FY13/ FY14E.

China to be a key catalyst for margin expansion at SMR/ SMP

SMR is present in China via a 50:50 JV (formed in 2007) with Ningbo Huaxang group while SMP has a 51:49 JV with Changshu Automotive Trim Co. (CAIP).

China contributes ~10%/ ~12% to SMR/ SMP revenues. For SMR, VW is the largest client in China (45% of China revenues) followed by Toyota (10%) and Audi

(5%). Audi and VW contribute to 95% of SMP’s China revenues with BMW and Daimler being the recentadditions to portfolio. SMP’s Foshan (interiors for premium car manufacturers) facility would begincommercial production in CY14.

The management expects SMR’s market share in China to move up to 25% by 2017 from 10% currently. It hasalready bagged 16 new orders across facili ties.

China is by far the most profitable geography for global OEMs and component players. Therefore, increasingcontribution from operations in China would boost overall margins of these operations.

Sustained recovery in Europe to expedite margin improvementEurope contributes ~46% to SMR’s and ~80% to SMP’s revenues. Notably, Europe

PV market is showing signs of bottoming out and, post a compounded annualdecline of 4% over CY08-12, car sales have grown 6% yoy in Q4CY13. A full-fledgedrecovery in Europe would increase utilisation rates at both SMR and SMP, whichwould translate into higher profitability for these operations.

Exhibit 10: European PV segment showing early signs of recovery

(20.0)

(10.0)

0.0

10.0

20.0

Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13

Europe car growth yoy (%)


Brazil plant back in theblack; turnaround of other

loss-making plants to boost profitability

Europe recovery wouldlead to improved utilisation

rates for SMR and SMP



Motherson Sumi


With a turnaround in SMR/ SMP and steady performance at standalone operations,we expect consolidated EBITDA margins to grow to 10.6%/ 11.7% in FY15E/ FY16E.

Exhibit 11: Management targets mid-teen EBITDA maring for SMR SMP EBITDA margin trend; to expand 670bp over FY12-FY16E


Exhibit 12: Standalone margin; steady despite tough environment Consolidated EBITDA margin expansion to be led by SMR/ SMP

16.2 16.1

18.4 19.3 20.0

20.8

0.0

6.0

12.0

18.0

24.0

FY11 FY12 FY13 FY14E FY15E FY16E

Standalone EBITDA margin (%)

10.8

7.2 7.6

9.3

10.6

11.7

0.0

3.0

6.0

9.0

12.0


Consolidated EBITDA margin (%)


7.0

5.0

6.5

9.4

11.5

13.0

0.0

4.0

8.0

12.0

16.0


SMR EBITDA margin (%)

1.3

3.8

5.8

7.0

8.0

0.0

2.5

5.0

7.5

10.0

FY12 FY13 FY14E FY15E FY16E

SMP EBITDA margin (%)



Motherson Sumi


Financial Analysis: 32% earnings CAGR over FY14-16E

We expect MSSL to register consolidated earnings CAGR of 32% over FY14-16E, led by earnings CAGR of 46%/ 83% at SMR/ SMP owing to higher order intake,expansion in the more-profitable China geography and increasing content pervehicle. In the standalone business, PV market recovery should drive earningsCAGR of 24% over the period.

Exhibit 13: Revenues from key businesses Revenue contribution from key businesses


Exhibit 14: EBITDA from key businesses EBITDA contibution from key businesses


Exhibit 15: PAT (after concern share) from key businesses PAT (after concern share) contribution from key businesses (%)


Revenue (Rs m) FY13 FY14E FY15E FY16EStandalone 43,217 45,378 51,731 62,077SMR 69,538 91,763 110,194 127,826SMP 127,848 156,505 184,716 210,576Others 15,567 14,511 15,237 15,999Total 256,170 308,157 361,878 416,477

16.9 14.7 14.3 14.9

27.1 29.8 30.5 30.7

49.9 50.8 51.0 50.6

6.1 4.7 4.2 3.8

0%

25%

50%

75%

100%

FY13 FY14E FY15E FY16E

Standalone SMR SMP Others

EBITDA (Rs m) FY13 FY14E FY15E FY16EStandalone 7,943 8,758 10,346 12,912SMR 4,511 8,670 12,672 16,617SMP 4,805 9,139 12,930 16,846Others 2,181 2,338 2,286 2,400

Total 19,440 28,905 38,234 48,775

40.930.3 27.1 26.5

23.230.0 33.1 34.1

24.7 31.6 33.8 34.5

11.2 8.1 6.0 4.9

0%

25%

50%

75%

100%



PAT (Rs m) FY13 FY14E FY15E FY16EStandalone 4,893 5,242 6,464 8,110SMR 527 1,987 3,148 4,274SMP 180 1,021 2,341 3,420Others 749 1,209 868 911Total 6,349 9,459 12,821 16,716

77.1

55.4 50.4 48.5

8.3

21.0 24.6 25.6

2.810.8 18.3 20.5

11.8 12.8 6.8 5.5

0%

25%

50%

75%

100%



SMR/ SMP to register a 46%/83% CAGR over FY14-16E



Motherson Sumi


RoCE expected to touch 36% in FY16EMSSL targets to reach RoCE of 40% over FY15-16E. However, our assumptionsincorporate RoCE of 36% in FY16E – a 1,380bp improvement over FY14E. Marginexpansion at SMR and SMP would help the company bring down consolidated netdebt to Rs27bn, thereby boosting RoCE. Notably, a sharper-than-expected recovery

in European markets could see MSSL achieving its targeted RoCE of 40%.

Exhibit 16: RoCE trend – to inch up closer to its targeted 40% due to debt reduction

19.5

10.2 10.7

22.6

31.9

36.4

0.0

10.0

20.0

30.0

40.0


RoCE (%)


Valuations & view

We value MSSL on an SoTP basis with targeted standalone EV/ EBITDA multiple at11x (~20% discount to average multiple pre-SMR acquistion) FY16E and arrive at atarget per share value of Rs161. We assign a target EV/ EBITDA multiple of 6x/ 6x toSMR/ SMP, arriving at a target per share value of Rs54/ Rs58. Our targetconsolidated net debt stands at Rs27bn or Rs18 per share. Other subsidiaries have

been valued at Rs19 per share. Thus, our SoTP target price stands at Rs274 withimplied P/E of ~14.5x, ~20% discount to historical average P/E pre-SMR acquisition.

Exhibit 17: MSSL – SoTP valuation Target price contribution from segments

Source: Company, IDFC Securities Research; * - 51% stake post exercise of put option

EBITDA EV/ EBITDA Value Value/

(Rs m) (x) (Rs m) share (Rs)FY16E standalone 12,912 11.0 142,032 161FY16E SMR ( 47.7% stake) 16,617 6.0 47,559 54FY16E SMP* ( 51% stake) 16,846 6.0 51,549 58Other subsidiaries 2,400 7.0 16,799 19

Less: Consol Net debt 15,906 18Target Price 274

Standalone56.9%

SMR19.5%

SMP16.7%

Other subs idiaries6.9%

Margin expansion at SMRand SMP to reduce

consolidated net debt toRs27bn, boosting RoCE

Our target price of Rs274implies a PE of ~14.5x,

~20% discount to pre-SMRhistorical average



Motherson Sumi


Exhibit 18: Peer comparison valuation:

Company Mkt cap P/E (x) EV/ EBITDA (x) RoE (%) RoCE (%)

(US$m) FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY14MOTHERSON SUMI SYSTEMS LTD 3,238 29.0 16.0 12.3 9.3 6.4 5.0 22.5 22.8

Faurecia * 5,429 42.2 15.7 11.0 5.4 4.7 4.0 6.4 9.1Plastic Omnium * 5,490 19.2 14.9 12.4 8.3 7.6 6.8 22.7 12.9Visteon Corp * 4,079 6.1 20.8 17.2 7.1 6.2 5.5 41.8 7.4Johnson Controls Inc # 32,710 28.6 15.1 12.9 10.5 10.0 9.0 9.8 8.7Gentex Corp 4,627 20.5 17.5 16.2 12.8 10.0 9.2 18.2 15.7Global peers average 23.3 16.8 13.9 8.8 7.7 6.9 19.8 10.8

Bharat Forge 1,502 23.0 18.0 14.9 11.1 9.7 8.6 16.2 6.0Bosch * 4,686 31.0 26.1 20.6 19.4 16.3 13.3 14.9 17.8

Amara Raja Batteries 1,078 17.9 16.3 13.2 11.6 9.8 7.7 30.8 38.5Exide Industries 1,587 22.0 18.4 15.7 12.2 10.4 8.8 12.8 17.6

Domestic peers average 22.2 18.7 16.0 13.0 11.1 9.5 18.3 19.8Source: Company, IDFC Securities Research, * Calender year-ending; #-September year ending

Key Risks Extended recession in Europe

An extended recession in Europe will hit utlilisation rates of SMR/ SMP plants,thereby dampening margins. With 50%+ of revenues coming from Europe, theregion is SSML’s mainstay.

Expensive acquisitions stretching balance sheetMSSL has stated its strategy of growing organically as well as inorganically.However, any future acquisitions will stretch the company’s balance sheet as debt iscurrently high (1.6x D/E).

Delayed recovery in India; slowdown in ChinaIndia contributes >50% of SSML’s consolidated PAT. We have built in a recovery inthe domestic passenger vehicle industry in 2HFY15. Any delay in a rebound will hitstandalone business financials. Further, slowdown in China would restrict marginexpansion at SMR/ SMP as China is one of the faster growing, high margingeography for SMR/ SMP.



Motherson Sumi


Scenario analysis

Bear case Base case Bull case

FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16EStandaloneRevenues (Rs m) 45,378 49,008 52,929 45,378 51,731 62,077 45,378 56,722 76,575

yoy (%) 5.0 8.0 8.0 5.0 14.0 20.0 5.0 25.0 35.0EBITDA (Rs m) 8,758 7,841 8,469 8,758 10,346 12,912 8,758 13,613 18,378EBITDA margin (%) 19.3 16.0 16.0 19.3 20.0 20.8 19 24.0 24.0PAT (Rs m) 5,242 4,686 4,955 5,242 6,464 8,110 5,242 8,784 11,991yoy (%) 7 (10.6) 5.7 7.1 23.3 25.5 7 67.6 36.5EPS (Rs) 5.9 5.3 5.6 5.9 7.3 9.2 5.9 10.0 13.6Net debt (Rs m) 4,200 4,412 3,500EV/ EBITDA Target multiple (x) 10.0 11.0 13.0Standalone per share value (Rs) 91 156 267

SMRRevenue (EUR m) 1,127 1,240 1,364 1,127 1,296 1,504 1,127 1,409 1,761yoy (%) 13.5 10.0 10.0 13.5 15.0 16.0 13.5 25.0 25.0EUR:INR 81.4 75.0 75.0 81.4 85.0 85.0 81.4 90.0 90.0Revenue (Rs m) 91,763 93,003 102,303 91,763 110,194 127,826 91,763 126,822 158,528yoy (%) 32 1.4 10.0 32.0 20.1 16.0 32 38.2 25.0EBITDA (Rs m) 8,670 8,370 9,207 8,670 12,672 16,617 8,670 17,755 25,364EBITDA margin (%) 9.4 9.0 9.0 9.4 11.5 13.0 9.4 14.0 16.0PAT (concern share) 2,044 1,833 1,942 2,044 3,331 4,523 2,044 5,102 7,570yoy (%) 365.5 (10.3) 6.0 365.5 59.5 35.8 365.5 149.5 48.4Net debt (Rs m) 1200.0 712 500.0EV/ EBITDA Target multiple (x) 5.0 6.0 7.0SMR per share value (Rs, 47.7%) 24 54 96SMP

Revenue (EUR m) 1,923 2,039 2,161 1,923 2,173 2,477 1,923 2,269 2,678yoy (%) 5.3 6.0 6.0 5.3 13.0 14.0 5.3 18.0 18.0

EUR:INR 81.4 75.0 75.0 81.4 85.0 85.0 81 90.0 90.0Revenue (Rs m) 156,505 152,888 162,061 156,505 184,716 210,576 156,505 204,235 240,998yoy (%) 22.4 (2.3) 6.0 22.4 18.0 14.0 22.4 30.5 18.0EBITDA (Rs m) 9,139 7,644 8,103 9,139 12,930 16,846 9,139 18,381 21,690EBITDA margin (%) 5.8 5.0 5.0 5.8 7.0 8.0 5.8 9.0 9.0PAT (concern share) 797 354 234 1,021 2,341 3,420 797 3,346 4,019yoy (%) - (55.5) (34.1) 468 129 46 - 319.8 20.1Net debt (Rs m) 25,000 21,872 18,000EV/ EBITDA Target multiple (x) 5.0 6.0 8.0SMP per share value (Rs, 51%) 7 46 72

ConsolRevenue (Rs m) 308,157 310,136 333,292 308,157 361,878 416,477 308,157 403,017 492,099yoy (%) 0.6 7.5 17.4 15.1 30.8 22.1EBITDA (Rs m) 28,905 26,141 28,179 28,905 38,234 48,775 28,905 52,035 67,832EBITDA margin (%) 9.4 8.4 8.5 9.4 10.6 11.7 9.4 12.9 13.8PAT (concern share) 9,512 7,969 8,282 9,736 13,233 17,205 9,512 18,328 24,731yoy (%) - (16.2) 3.9 - 35.9 30.0 - 92.7 34.9FDEPS 10.8 9.0 9.4 11.0 15.0 19.5 10.8 20.8 28.0

Target Price (Rs) 142 274 454CMP (Rs) 232 232 232Potential (%) (39.0) 18.1 95.2



Motherson Sumi


Sensitivity analysis

Target price sensitivity to FY16E SMR EBITDA margin and SMP EBITDA margin

FY16E SMR EBITDA margin (%)

9.0 12.0 13.0 15.0 16.0

5.0 236 248 253 261 2656.0 243 256 260 268 2728.0 258 270 274 283 287

10.0 272 285 289 297 30212.0 287 300 304 312 316

Target price sensitivity to FY16E SMR revenue growth and EBITDA margin

FY16E SMR revenue growth (%)

10.0 15.0 16.0 20.0 25.09.0 256 258 258 259 261

12.0 268 270 270 272 274

13.0 272 274 274 276 27915.0 280 282 283 285 28816.0 283 286 287 289 292

Target price sensitivity to FY16E SMP revenue growth and EBITDA margin

FY16E SMP revenue growth (%)

6.0 10.0 14.0 16.0 18.05.0 250 251 253 253 2546.0 257 258 260 261 2618.0 270 272 274 275 276

10.0 284 286 289 290 292

12.0 298 301 304 305 307

Target price sensitivity to FY16E standalone revenue growth and EBITDA margin

FY16E Standalone revenue growth(%)

5.0 10.0 20.0 25.0 30.016.0 222 227 237 242 24818.0 235 241 253 259 26420.8 254 261 274 281 28822.0 262 270 284 291 29824.0 276 284 299 307 315

F Y 1 6 E S M P

E B I T D A

m a r g

i n ( % )

F Y 1 6 E

S M R

E B I T D A

m a r g i n

( % )

F Y 1 6 E S M P

E B I T D A

m a r g

i n ( % )

F Y 1 6 E

S t a n

d a l o n e

E B I T D A

m a r g

i n ( % )



Motherson Sumi


ANNEXURE Exhibit 19: Shareholding pattern


Standalone business

Exhibit 20: Product portfolio; bulk of the sale from wiring harness Wiring harness India market share; MSSL clear leader

Wiring harness75%

Polymercomponents

24%

Rubber/metalmachined andother products

1%

Motherson Sumi65%

Yazaki16%

Others19%


Other JV’s &SubsidiariesOther JV’s &Subsidiaries

Public & Others

Samvardhana Motherson Reflectec (SMR)Global Rear View Business

(Total Holding 93.6%)



Sumitomo WiringSytems SWS) Sehgal Family Sojitz Corporation Empolyees

Motherson Sumi Systems Limited(MSSL)


Samvardhana Motherson International Limited(SMIL)


Samvardhana Motherson Peguform (SMP)Global Polymer Business





34.53% 25.55% 3.80% 90.3% 6.5% 3.2%

36.12%

51%

51%

49%

49%


Public & Others





Sumitomo WiringSytems SWS) Sehgal Family Sojitz Corporation Empolyees










34.53% 25.55% 3.80% 90.3% 6.5% 3.2%

36.12%

51%

51%

49%

49%



Motherson Sumi


Exhibit 21: Standalone business plant locations

Source: Company



Motherson Sumi


SMR

Exhibit 22: Gepgraphy-wise revenue contribution Global rear-view mirror market share

Europe46%

Asia Pacific32%

Americas22% SMR

22%

MagnaInternational

37%

Gentex18%

Ficosa14%

Others9%


Exhibit 23: SMR Plant locations

Source: Company



Motherson Sumi


SMP

Exhibit 24: Product range

Source: Company; IDFC Securities Research

Exhibit 25: Bumpers market share – Europe Front end module market share – Europe, North America

SMP9%

Faurecia25%

Plastic Omnium17%

Magna15%

Others34%

HBPO49%

Magna19%

FAE15%

Others17%

Source: Company; IDFC Securities Research; Faurecia presentation

Exhibit 26: Global plastic interior systems market share Plastic exterior systems market share - Europe

SMP6%

Faurecia15%

JohnsonControls Inc.

12%

IAC10%Visteon

10%

Magna7%

Others40%

SMP16%

Faurecia31%

Plastic Omnium19%

Magna16%

Rehau11%

Others7%

Source: Company; IDFC Securities Research; Faurecia presentation

SMP is market leader for bumper covers in Germany and Spain. One of the largest business segments of SMPBumper modules

Expertise in manufacturing and supplying highly complex systems with large dimensions

High value content addeed to bunper covers such as crash beams, lighting systems, air coolers, air vents, washernozzles, parking sensors

Front endmodules

Dashboards, fully assembled cockpits, centre consoles, door panels, covers and decorative trimsInterior modules

After several years of research, SMP has recieived a high volume order for the production of innovative natural fibrereiinforced interior components in early 2013

Materialsubstitution andlight weightingtechnologies

SMP is market leader for bumper covers in Germany and Spain. One of the largest business segments of SMPBumper modules

Expertise in manufacturing and supplying highly complex systems with large dimensions

High value content addeed to bunper covers such as crash beams, lighting systems, air coolers, air vents, washernozzles, parking sensors

Front endmodules

Dashboards, fully assembled cockpits, centre consoles, door panels, covers and decorative trimsInterior modules

After several years of research, SMP has recieived a high volume order for the production of innovative natural fibrereiinforced interior components in early 2013

Materialsubstitution andlight weightingtechnologies



Motherson Sumi


Exhibit 27: Geography-wise sales break-up Customer-wise sales break-up

Germany46%

Spain32%

China12%

Brazil6%

Mexico4%

Volksw agen27%

Audi23%Seat

16%

BMW9%

Others25%

Source: Company; IDFC Securities Research

Exhibit 28: SMP plant location map

Source: Company



Motherson Sumi


Income statement

Year to 31 Mar (Rs m) FY12 FY13 FY14E FY15E FY16ENet sales 147,766 253,124 308,157 361,878 416,477

% growth 79.1 71.3 21.7 17.4 15.1

Operating expenses 138,841 238,357 281,936 323,644 367,702

EBITDA 8,925 14,767 26,221 38,234 48,775

% change 16.4 65.5 77.6 45.8 27.6

Other income 1,336 3,121 234 806 877

Net interest (1,649) (2,495) (2,889) (2,750) (2,550)

Depreciation 3,796 7,145 8,330 9,768 11,752

Pre-tax profit 4,116 8,342 15,236 26,522 35,350

Current tax 2,153 3,835 5,400 8,000 10,662

Profit after tax 1,963 4,507 9,836 18,522 24,689

Preference dividend (2) (8) (1) (1) (1)

Minorities 631 (70) (2,776) (5,701) (7,973)

Non-recurring items 700 (94) 2,590 - -

Net profit after

non-recurring items 3,296 4,351 9,651 12,822 16,717

% change (13.5) 32.0 121.8 32.9 30.4

Balance sheet

As on 31 Mar (Rs m) FY12 FY13 FY14E FY15E FY16EPaid-up capital 388 588 588 588 588

Reserves & surplus 18,325 22,302 28,428 35,433 44,584

Total shareholders' equity 23,740 26,915 35,817 48,523 65,646

Total current liabilities 51,283 55,140 54,528 66,249 70,584

Total debt 41,289 40,712 41,651 41,107 36,475

Deferred tax liabilities 1,542 1,616 1,616 1,616 1,616

Other non-current liabilities 2,744 4,067 4,237 4,414 4,599

Total liabilities 96,858 101,535 102,031 113,386 113,274

Total equity & liabilities 120,598 128,450 137,848 161,909 178,920

Net fixed assets 49,535 54,422 57,486 59,852 60,115Investments 938 716 788 866 953

Total current assets 64,390 67,187 73,287 94,732 111,215

Deferred tax assets 940 1,057 1,144 1,209 1,278

Other non-current assets 4,795 5,068 5,143 5,250 5,360

Working capital 13,107 12,047 18,759 28,483 40,631

Total assets 120,598 128,450 137,848 161,909 178,921

Cash flow statement

Year to 31 Mar (Rs m) FY12 FY13 FY14E FY15E FY16EPre-tax profit 4,116 8,342 15,236 26,522 35,350

Depreciation 3,796 7,145 8,330 9,768 11,752

Chg in Working capital (5,974) 2,505 (6,658) (7,854) (12,458)Total tax paid (2,153) (3,835) (5,400) (8,000) (10,662)

Ext ord. Items & others 2,357 918 3,447 1,209 1,733

Operating cash Inflow 2,142 15,075 14,956 21,645 25,716

Capital expenditure (33,610) (12,394) (11,395) (12,134) (12,015)

Free cash flow (a+b) (31,468) 2,681 3,561 9,511 13,701

Chg in investments (473) 222 (72) (79) (87)

Debt raised/(repaid) 29,866 (577) 939 (543) (4,632)

Capital raised/(repaid) (0) 5 - - -

Dividend (incl. tax) (2,525) (2,230) (1,900) (3,941) (6,135)

Misc 5,625 1,287 - - -

Net chg in cash 1,025 1,387 2,528 4,948 2,847

Key ratios

Year to 31 Mar FY12 FY13 FY14E FY15E FY16EEBITDA margin (%) 6.0 5.8 8.5 10.6 11.7

EBIT margin (%) 3.5 3.0 5.8 7.9 8.9

PAT margin (%) 1.8 1.8 2.3 3.5 4.0

RoE (%) 12.3 17.6 22.5 30.4 29.3

RoCE (%) 10.2 10.7 22.8 31.8 36.3

Gearing (x) 1.5 1.3 0.9 0.6 0.3

Valuations

Year to 31 Mar FY12 FY13 FY14E FY15E FY16EReported EPS (Rs) 3.7 4.9 10.9 14.5 19.0

Adj. EPS (Rs) 2.9 5.0 8.0 14.5 19.0

PE (x) 79.0 46.1 29.0 16.0 12.3

Price/ Book (x) 8.6 7.6 5.7 4.2 3.1

EV/ Net sales (x) 1.7 1.0 0.8 0.7 0.6

EV/ EBITDA (x) 27.6 16.5 9.3 6.4 5.0

EV/ CE (x) 3.6 3.3 2.9 2.6 2.3

Consolidated fiiancials (FY14-16E)

16

30 32

0

10

20

30

40

Revenue EBITDA PAT

CAGR FY14-16E(%)

Shareholding pattern

Promoters65.6%

Foreign17.3%

Institutions7.8%

Non-

promotercorporate

holding3.5%

Public &Others5.9%

As of December 2013



Motherson Sumi


Analyst Sector/Industry/Coverage E-mail Tel. 91-22-6622 2600 Shirish Rane Head of Research; Construction, Power [email protected] 91-22-662 22575Prakash Joshi Oil & Gas, Metals, Mining [email protected] 91-22-662 22564Nitin Agarwal Pharmaceuticals, Real Estate, Agri-inputs [email protected] 91-22-662 22568Hitesh Shah, CFA IT Services & Telecom [email protected] 91-22-662 22565Manish Chowdhary Financials [email protected] 91-22-662 22563Bhoomika Nair Engineering, Cement, Power Equipment, Logistics [email protected] 91-22-662 22561Pramod Kumar Automobiles, Auto ancillaries [email protected] 91-22-662 22562

Ashish Shah Construction, Power [email protected] 91-22-662 22560 Abhishek Gupta Telecom, IT services [email protected] 91-22-662 22661Mohit Kumar, CFA Construction, Power [email protected] 91-22-662 22573

Param Desai Pharmaceuticals, Real Estate, Agri-inputs [email protected] 91-22-662 22579Probal Sen Oil & Gas [email protected] 91-22-662 22569Saumil Mehta Metals, Mining [email protected] 91-22-662 22578Harit Kapoor FMCG, Retail, Alcoholic Beverages [email protected] 91-22-662 22649Sameer Bhise Financials [email protected] 91-22-662 22635

Abhishek Ghosh Engineering, Cement, Power Equipment, Logistics [email protected] 91-22-662 22658Nikhil Salvi Strategy, Mid-caps [email protected] 91-22-662 22566Jay Kale, CFA Automobiles, Auto ancillaries [email protected] 91-22-662 22529Dharmendra Sahu Database Analyst [email protected] 91-22-662 22580

Equity Sales/Dealing Designation E-mail Tel. 91-22-6622 2500

Anish Damania Head – Institutional Equities [email protected] 91-22-6622 2522 Ashish Kalra Managing Director, Sales [email protected] 91-22-6622 2525Rajesh Makharia Director, Sales [email protected] 91-22-6622 2528

Varun Saboo VP, Sales [email protected] 91-22-6622 2558 Arati Mishra VP, Sales [email protected] 91-22-6622 2597Hemal Ghia VP, Sales [email protected] 91-22-6622 2533Tanvi Dixit AVP, Sales [email protected] 91-22-6622 2595

Nirav Bhatt AVP, Sales [email protected] 91-22-6622 2681Chandan Asrani Manager, Sales [email protected] 91-22-6622 2540Sneha Baxi Manager, Sales [email protected] 91-22-6622 2537Samir Gilani Head of Trading [email protected] 91-22-6622 2535Mukesh Chaturvedi Director, Sales trading [email protected] 91-22-6622 2512

Viren Sompura SVP, Sales trading [email protected] 91-22-6622 2527Rajashekhar Hiremath SVP, Sales trading [email protected] 91-22-6622 2516

Alok Shyamsukha VP, Sales trading [email protected] 91-22-6622 2523

IDFC Securities US Designation E-mail TelephoneRavilochan Pola CEO [email protected] 001 646 756 5865

DisclaimerThis document has been prepared by IDFC Securities Ltd (IDFC SEC). IDFC SEC and its subsidiaries and associated companies are a full-service, integrated investment banking, investmentmanagement and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities.This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavor to update the information herein on reasonable basis, theopinions and information in this report are subject to change without notice and IDFC SEC, its subsidiaries and associated companies, their directors and employees (“IDFC SEC and affiliates”) are

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Explanation of Ratings:1. Outperformer : More than 5% to Index2. Neutral : Within 0-5% (upside or downside) to Index3. Underperformer : Less than 5% to Index

Copyright in this document vests exclusively with IDFC Securities Ltd.



Motherson Sumi

www.idfc.com

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MOTHERSON SUMI

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