Motherson Sumi Wiring shares gain as Q2 results meet estimates, offer positive margin outlook

The share price of Motherson Sumi Wiring edged higher on November 1, a day after the company reported in-line Q2 FY24 earnings, leaving analysts hopeful of an improving margin outlook and bullish on the stock. The auto ancillary firms’s net profit surged 34 percent on-year, driven by healthy operating performance. Revenue also grew by 15 percent (YoY).

At 9:26 am, Motherson Sumi Wiring shares were trading 1.4 percent higher at Rs 60.80 on the National Stock Exchange (NSE).

Analysts expect a gradual recovery in the operating performance starting from the second half of FY24, primarily on account of increased production and utilisation of the new plants.

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Outlook

Motherson Wiring has consistently taken a proactive approach to capacity expansion and R&D initiatives and added three facilities this year, which are expected to reach optimum utilisation in FY24, the analysts noted.

Adhering to its principle, the company is likely to initiate its expansion plans once it achieves close to 80 percent utilisation of its existing capabilities. For new orders, it would start looking at new capacity enhancement almost 1-1.5 years before the predicted date of supply, according to a Motilal Oswal report.

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EBITDA margin to improve

Motherson Wiring’s earnings before interest, tax, depreciation and amortisation (EBITDA) increased 33 percent YoY to Rs 253 crore. Its EBITDA margin, however, shrank to 11.8 percent due to lower gross margins and gradual ramp-up in new orders, where operational efficiencies are still being established.

Analysts at Motilal Oswal expect the margin to improve by 100 basis points (bps) over the next two quarters and reach close to FY22 levels, led by cost pass-through and ramp-up in new facilities.

In the quarter under review, Motherson Wiring’s net sales grew 15 percent YoY to Rs 2,092 crore. This is the first time that the company’s quarterly sales surpassed the Rs 2,000 crore-mark.

Should you buy?

Domestic brokerage Motilal Oswal has reiterated its ‘buy’ rating on Motherson Sumi wiring stock with a target price of Rs 70 per share. “We believe it deserves rich valuations, driven by a) its strong competitive positioning, b) top decile capital efficiencies, and c) it being a beneficiary of EVs and other mega trends in Autos,” it said in its report.

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Motherson Sumi Wiring shares closed marginally lower at Rs 60.05 on the National Stock Exchange (NSE) in the previous session. So far in 2023, the stock has risen a little over 3 percent, underperforming benchmark Nifty.

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