Motherson Sumi Systems Ltd

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August 10, 2015 RESULT UPDATE - Q1FY16 Motherson Sumi Systems Ltd Sensex: 28236 CMP: INR 349 Target: INR 378 Auto Ancillaries MSSL's Q1FY16 results were inline with our estimates on the topline whereas bottomline came in higher than estimates due to lower than expected interest cost & minority interest and higher than anticipated other income. The company reported robust topline growth in Euro for both SMR (up 17.6% YoY) & SMP (25.4%) but ~15.0% YoY depreciation of Euro vis-à-vis INR resulted in revenue growth of mere ~11.8% in rupee terms. We maintain our positive view on MSSL but change our rating from BUY to HOLD because of recent run up in stock price while retaining our target price of INR 378 based on 12x FY17E EV/EBITDA. Consolidated PAT up 49% MSSL reported topline growth of 11.8% to INR 94 bn which was primarily led by growth in overseas business. COGS as a % of sales declined by mere 103 bps to 61.4% as (1) engineering plastics have not seen significant decline in cost & (2) MSSL had to pass on some of the decline in commodity costs to OEMs. Employee costs grew 16.7% YoY to 17828 mn (19% of sales v/s 18.2% YoY) on the back of appraisals and hiring of employees for newly commenced plants. Other expenses declined 30 bps to 11.0% of sales. Start up costs relating to 14 new plants led to limited EBITDA margin expansion of 50 bps to 8.6%. PAT clocked in growth of 49% to INR 2816 mn. Other income boost to standalone PAT Standalone operations got a boost from INR 611 mn of other income, excluding which standalone PAT was down by 9.7%. Revenue was largely flat at INR 12370 mn as the company had to pass on the benefit of Yen depreciation and decline in copper costs. MSSL had witnessed domestic volume growth of 4.5%. COGS as a % of sales declined 73 bps to 55.7% whereas employee cost expanded 72 bps to 13.0%. Other expenses declined 32 bps to 14.0% of sales. The company garnered INR 355 mn from sale of stake in JV with Woco Franz Josef Wolf Holding GmbH. Robust growth for SMR & SMP SMP reported revenue growth of 25.4% YoY in Euro (Revenue- Euro 666 mn) whereas SMR clocked in growth of 17.6% YoY to Euro 345 mn but 15% YoY depreciation of Euro against INR arrested the robust growth resulting in growth of only 7.4% for SMP and revenue degrowth of 3.1% for SMR in rupee terms. EBITDA margin expanded by 19 bps for SMP and contracted by 16 bps for SMR and stood at 6.2% & 9.0% respectively. Other highlights (1) The wiring harness business of Stoneridge (USA), i.e. MWSI, which MSSL had acquired last year, has now turned profitable and MWSI is now eyeing new orders for growth. (2) MSSL is closely watching the Chinese market conditions. Currently China accounts for 7%-8% of total business for MSSL. Outlook & Valuation The demand outlook continues to be strong across US & Europe. On the domestic front too, PV industry is on the revival path. MSSL's EBITDA margin has increased across all the three entities driven primarily by reduced raw material costs and better utilization of plants. With improvement in overall business through increased internal sourcing by subsidiaries, ramp up of new plants and improvement in utilization levels, we expect MSSL's consolidated revenues & profits to register a CAGR of ~14.5% & ~27.1% respectively between FY15-17E. We maintain our positive view on MSSL but change our rating from BUY to HOLD because of recent run up in stock price while retaining our target price of INR 378 based on 12x FY17E EV/EBITDA. Shareholding (%) Jun-15 Promoters 65.59 FIIs 18.82 DIIs 5.19 Others 10.4 Relative Price Performance 160 150 140 130 120 110 100 90 80 Aug-14 Sep-14 Oct-14 v-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 MSSL Prashant Biyani prashant.biyani@spagroupindia.com Ph.. 91 33 4011 4800 (Ext. 833) Sensex Key Data BSE Code 517334 NSE Code MOTHERSUMI Bloomberg Code MSS IN Reuters Code MOSS.BO Shares Outstanding (mn) 1322.9 Face Value 1 Mcap (INR bn) 461.22 52 Week H/L 395.85/229.57 2W Avg. Vol, NSE 3430192 Free Float (INR bn) 105.8 Beta 0.92 1 (INR mn) FY14 FY15 FY16E FY17E Net Sales 304279 350319 396486 459145 Growth (%) 20.21% 15.13% 13.18% 15.80% EBIDTAM (%) 8.84% 8.72% 9.14% 9.73% Adj. PAT 7484 8625 10448 13942 Growth (%) 73.97% 15.64% 21.13% 33.45% Adj. EPS (INR) 8.46 9.78 7.90 10.54 P/E (x) 30.26 52.49 44.19 33.12 EV/EBIDTA 11.13 11.20 13.94 11.13 Net Debt/Equity 1.33 0.98 0.98 0.66 RoACE (%) 25.00% 26.27% 29.56% 36.34% RoAE (%) 25.29% 25.95% 25.08% 27.86%

Consolidated Quarterly Performance Particulars (INR Mn) Q1FY16 Q4FY15 QoQ% Q3FY15 Q2FY15 Q1FY15 YoY% Net Sales 93848 94743-0.94% 91494 80167 83915 11.84% Other Income 247 71 249.01% 61 49 49 403.26% Total Income 94095 94814-0.76% 91554 80215 83965 12.07% Raw Material Consumed 57638 57900-0.45% 56965 52685 54304 6.14% Stock Adjustment (469) (207) 126.71% (644) (4551) (2328) -79.87% Purchase of Finished Goods 416 842-50.61% 639 327 381 9.02% Employee Expenses 17828 17272 3.22% 16084 15021 15275 16.71% Loss on Forex Transaction 53 (312) NA 217 200 9 510.47% Other Expenses 10297 9873 4.29% 9939 10638 9462 8.83% TOTAL EXPENDITURE 85763 85369 0.46% 83201 74320 77103 11.23% EBITDA 8085 9375-13.75% 8292 5847 6813 18.68% Depreciation 2346 2307 1.71% 2337 2369 2193 6.99% EBIT 5739 7068-18.80% 5955 3477 4620 24.23% Interest 683 853-19.92% 748 956 621 10.09% PBT 5303 6286-15.63% 5268 2570 4048 30.99% Tax 1638 1387 18.14% 1261 1085 1524 7.50% PAT 3665 4899-25.19% 4007 1485 2525 45.17% Minority Interest After NP 1007 1499-32.85% 1466 441 887 13.46% Profit/Loss of Associate Company (1) 1 NA 2 1 0 NA Extra-ordinary Items (158) 29 NA 11 (620) (249) -36.58% APAT 2816 3372-16.51% 2531 1665 1887 49.25% Equity 882 882 0.00% 882 882 882 0.00% Face Value 1 1 0.00% 1 1 1 0.00% EPS 3.19 3.82-16.51% 2.87 1.89 2.14 49.25% EBITDA (%) 8.62% 9.89% (128 bps) 9.06% 7.29% 8.12% 50 bps OPM (%) 8.88% 9.97% (109 bps) 9.13% 7.35% 8.18% 70 bps APATM (%) 3.00% 3.56% (56 bps) 2.77% 2.08% 2.25% 75 bps 2

Standalone Quarterly Financials Partioculars (INR Mn) Q1FY16 Q4FY15 QoQ% Q3FY15 Q2FY15 Q1FY15 YoY% Net Sales 12370 12827-3.56% 12394 12706 12251 3.71% Other Income 611 19 3050.52% 21 421 24 1626.64% Total Income 12981 12846 1.05% 12415 13127 12276 6.94% Raw Material Consumed 6395 6538-2.19% 6337 6914 6610 4.59% Stock Adjustment 126 (254) NA (62) (221) (74) 198.24% Purchase of Finished Goods 373 838-55.49% 641 332 381-12.69% Employee Expenses 1613 1503 7.38% 1514 1502 1510-0.50% Loss on Forex Transaction 7 (56) NA (14) 99 (73) NA Other Expenses 1727 1613 7.08% 1837 1888 1750 7.94% TOTAL EXPENDITURE 10242 10182 0.58% 10253 10514 10103 4.07% EBITDA 2128 2644-19.52% 2141 2191 2149 2.00% Depreciation 506 478 5.75% 513 598 482 23.86% EBIT 1622 2166-25.10% 1628 1594 1666-4.33% Interest 51 90-43.32% 78 66 69-5.34% PBT 2183 2096 4.15% 1571 1950 1621 20.26% Tax 596 634-5.98% 434 504 518-2.65% PAT 1586 1461 8.55% 1138 1446 1104 31.00% Equity 882 882 0.00% 882 882 882 0.00% Face Value 1 1 0.00% 1 1 1 0.00% EPS 1.80 1.66 8.55% 1.29 1.64 1.25 31.00% EBITDA (%) 17.20% 20.62% (341 bps) 17.27% 17.25% 17.54% (33 bps) OPM (%) 22.15% 20.77% 138 bps 17.44% 20.56% 17.74% 441 bps PATM (%) 12.82% 11.39% 143 bps 9.18% 11.38% 9.01% 382 bps 3

Financials Income Statement Net Sales 304279 350319 396486 459145 Growth in Sales (%) 20.21% 15.13% 13.18% 15.80% Cost of goods sold 193780 216314 244461 280397 Employees Cost 51064 63653 72160 83564 Other Expenses 29685 33842 36873 42701 Total Expenditure 280474 319940 360433 414697 EBIDTA (without OI) 23805 30379 36053 44448 % Growth 62.57% 27.62% 18.68% 23.29% EBITDA Margin % 8.84% 8.72% 9.14% 9.73% Depreciation/Amortization 8,172 9,206 10,387 11,557 EBIT 15,633 21,173 25,666 32,891 EBIT Margin % 5.14% 6.04% 6.47% 7.16% Interest Expense 2,943 3,178 3,202 2,896 Other Income 3,106 177 194 214 Exceptionals 26 0 0 0 EBT 15,796 18,172 22,658 30,209 Tax Expenses 4,994 5,256 7,300 9,717 PAT 10,802 12,916 15,357 20,492 Minority Interest 3,316 4,294 4,914 6,557 APAT 7,484 8,625 10,448 13,942 % Growth 73.97% 15.64% 21.13% 33.45% APAT Margin % 2.45% 2.46% 2.64% 3.04% Key Ratios Year End March FY14 FY15 FY16E FY17E Per Share Data (INR) Adj. EPS 8.46 9.78 7.90 10.54 Growth (%) 15.98% 15.64% -19.24% 33.45% CEPS 17.75 20.22 15.75 19.27 DPS 2.50 3.00 2.53 3.58 BVPS 33.55 37.69 31.48 37.83 Return Ratios (%) RoCE 25.00% 26.27% 29.56% 36.34% RoNW 25.29% 25.95% 25.08% 27.86% Liquidity Ratios Net Debt/Equity 1.33 0.98 0.98 0.66 Interest Coverage Ratio 5.31 6.66 8.01 11.36 Current Ratio 1.30 1.27 1.34 1.30 Efficiency Ratios Asset Turnover Ratio 3.54 3.70 3.76 4.05 Inventory Days 62 63 63 63 Debtor Days 39 31 37 37 Creditor Days 68 76 71 65 Valuation Ratios P/E (x) 30.26 52.49 44.19 33.12 P/BV (x) 7.63 13.62 11.08 9.23 P/CEPS (x) 14.41 25.39 22.16 18.11 Dividend Yield (%) 0.72 0.86 0.72 1.03 EV/Net Sales (x) 0.87 0.97 1.27 1.08 EV/EBIDTA (x) 11.13 11.20 13.94 11.13 Balance Sheet Sources of funds Share capital 882 882 1323 1323 Reserves & Surplus 28711 32356 40331 48727 Total Networth 29593 33238 41654 50050 Minority Interest 7896 10143 15057 21614 Total Debt 48397 51329 48748 41748 Total Liabilities 85886 94710 105459 113412 Application of funds Net Block 59189 66529 73060 79503 Capital Work-in-Progress 6471 4318 5400 5400 Investments 749 650 650 650 Total Current Assets 80555 94186 97438 112332 Total Current Liabilities 61931 74271 72939 86277 Net Current Assets 18624 19916 24499 26055 Other Assets 853 3298 1850 1805 Total Assets 85886 94710 105459 113412 Cash Flow EBT 15796 18172 22658 30209 Less: Other Income 3106 177 194 214 Add:Depreciation 8172 9206 10387 11557 Add: Interest paid 2943 3178 3202 2896 Direct taxes paid 2081 2426 10468 23925 Change in Working Capital 4939 9689 (14756) 877 Cash Flow from operations (a) 26663 37643 10829 21400 Change in Fixed Assets (18911) (16546) (16918) (18000) Change in CWIP (2612) 2153 (1082) 0 Change in Investments (33) 99 0 0 Cash Flow from Investing (b) (21401) (12835) (13465) (18257) Change in Equity 0 0 0 0 Debt Raised/(Repaid) (642) 2932 (2581) (7000) Dividend paid 1176 2205 2646 3343 Interest paid (2943) (3178) (3202) (2896) Others 8 (17285) (5719) 3687 Cash Flow from Financing (c ) (2145) (14950) (8407) (2297) Net Change in Cash (a+b+c) 3117 9858 (11042) 845 Opening Cash 5944 9061 18919 7877 Closing Cash 9061 18919 7877 8722 4

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List of Associates as per SEBI (Research Analyst) Regulations, 2014 SPA Insurance Broking Services limited Statements on ownership and material conflicts of interest, compensation - SPA and Associates Disclosure of interest statement Yes/ SPA Securities/its Affiliates/Analyst/his or her Relative financial interest in the company SPA Securities/its Affiliates/Analyst/his or her Relative actual/beneficial ownership of more than 1% in subject company at the end of the month Immediately preceding the date of the publication of the research report or date of public appearance. Investment banking relationship with the company covered Any other material conflict of interest at the time of publishing the research report Receipt of compensation by SPA Securities or its Affiliated Companies from the subject company covered for in the last twelve months: Managing/co-managing public offering of securities Investment banking/merchant banking/brokerage services products or services other than those above in connection with research report Whether Research Analyst has served as an officer, director or employee of the subject company covered Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; For statements on ownership and material conflicts of interest, compensation, etc. for individual Research Analyst(s), please refer to each specific research report. SPA Securities Ltd: Mittal Court, A-Wing, 10th Floor, Nariman Point, Mumbai - 400 021, Tel.. : +91-022-4289 5600, Fax: +91 (22) 2657 3708/9 For More Information Visit Us At : www.spasecurities.com SPA CAPITAL SERVICES LIMITED Investment Advisory Services, AMFI Reg.. ARN-0007 SPA CAPITAL ADVISORS LIMITED SEBI registered Category-1 Merchant Bankers SEBI Regn.. INM000010825 SPA COMTRADE PRIVATE LIMITED Member of NCDEX & MCX. NCDEX TMID-00729, NCDEX FMC.NCDEX/TCM/CORP/0714 SPA INSURANCE BROKING SERVICES LTD Direct Broker for Life and General Insurance Broking IRDA Lic. Code. DB053/03 SPA Securities Ltd SEBI Reg. s. NSE Cash INB231178238 NSE Future & Option INF231173238 NSE Currency Derivatives INE231178238 BSE Cash INB011178234 BSE Currency Derivatives INE011178234 MCX-SX Cash INB261178231 MCX-SX Future & Option INF261178231 MCX-SX Currency Derivatives INE261178238 Mutual Fund ARN 77388 CDSL DP IN-DP-CDSL-485-2008 NSDL DP IN-DP-NSDL-316-2009 5