ValuePickr Forum

Motherson sumi : Recent opportunity to buy

Motherson sumi needs no introduction to Floks here

Motherson Sumi today hit fresh 52 week low after one of it’s main customer Volkswagon was caught in some irregularities for carbon emission in europe and may face the fine upto 18 billion dollars.

Moreover it’s another main customer Maruti has change it’s strategy of single vendor to multiple vendor to derisk the procurement. Maruti has stated it won’t procure more than 70% of components from single vendor. Motherson sumi supplies 85% of Maruti components. ( source moneycontrol )

I think this provides the opportunity to load up the stock as it has hit fresh low amid the uncertanities listed.

It’s a high quality management and always achieved it’s five year projected targets.

Though management said it won’t be much impacted with the volkswagon issue as it has only two plants in US.

Views invited by the fellow members.

Disc : Invested and added today @ 250 levels and forms 7% of portfolio

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Typically a sell on a bad news for a fundamentally strong stock should be used to accumulate.

However, in this case it may be that these things might impact the company’s revenues fundamentally. Some evaluation needs to be done on the impact. It may turn out to be a good opportunity based on the outcome.

In these situations a strong company will come back but will take time - example Titan. It is still struggling when compared to its previous growth rate/financial metrics.

Thanks for bringing this up. It is good to wait for the dust to settle down and not a good idea to buy on the day it hits a 52 week low (unless some body did a fat finger trade). Its ok even if it means paying up an extra 10% for it.

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Shares of Motherson Sumi extended losses for second consecutive day,
falling over 8 percent intraday on Tuesday. The stock was at 52-week
low of Rs 239.65 per share and down 14 percent year-to-date due to
concerns around one of its biggest clients Volkswagen.

The German carmaker has been accused of cheating on diesel emission
tests in the USA and may face penalties of up to USD 18 billion.

CLSA maintains an underperform rating on the stock and warns of
adverse impact if Volkswagen’s regulatory issues spill over to Europe.
Currently, Motherson has a limited exposure to Volkswagen in the USA.

Volkswagen is a key customer for Motherson in Europe and sales to its
group contributed 44 percent of its consolidated revenue in FY15.
According to CLSA estimates, if Motherson’s revenue from Volkswagen
group declines by 10 percent, it could result in 6 percent downside to
FY17 consolidated earnings per share (EPS).

“We continue to remain cautious on Motherson shares given the slow
pace of Indian auto demand recovery and slower-than-expected margin
improvement.

We believe that these regulatory issues for VW Group will be an
additional overhang on the stock in the near term until more clarity
emerges,” CLSA says in a note.In a response to CNBC-TV18, management
of Motherson Sumi has said that the company has only two big plants in
USA and are not affected by VW issue in any manner.

However, trouble for the German car maker has spread to South Korea as
the country’s environment ministry will conduct an investigation into
emissions of Volkswagen AG and Audi diesel cars after the firm
admitted rigging emissions tests on diesel-powered vehicles in the
United States.Meanwhile, Credit Suisse has already raised an alarm of
Motherson Sumi’s slowdown in domestic business.

“Motherson’s near dominance with Maruti is reducing as the
four-wheeler manufacturer is decreasing its single vendor
concentration. Maruti is in process of enforcing its single vendor not
having more than 70 percent share. Hence, Motherson which enjoys 85
percent share in Maruti component parts will suffer,” Credit Suisse
said.

Its a great company facing difficult times; it can be worth buying when news are bad for a good quality stock. But even at current price the stock is not cheap. Its still a expensive stock above 30 PE & with negative news of Maruti and VW there there growth will surely be impacted.
Yes but a good company to keep under watch after the recent correction.

Mr Sehgal,chairman of MS gave interview on the VW and Maruti.

He clarified that overall revenues from VW [Globa (US, Europe and China ] is around 12 % and from Maruti its just 4 %.

For a great company we should not wait for the dust to settle, history is evident there are recalls bla bla in the automobile sector. Yes if you look at valuation then it’s OK for what price you wanna to buy.

But as Warren Buffet suggest always buy when it’s blood on the street.People selling on panic should be blessing in disguise if one want to buy the stock for portfolio if not sudden then gradually.

A couple of factors that should impact MSS

  1. joint venture between Johnson control and Yanfeng is a good competitor in interior business. This may affect revenues of MSS

  2. slowdown in Brazil and China will again affect revenues of MSS

Disc :- I had shorted futures contract yesterday that has been settled today. Looking to buy (equity) if it corrects further. This is not a buy/sell recommendation. Please do your own due diligence

Sharp downward journey of Motherson Sumi started on 6th Aug. We need to find out what changed after this date. Maruti & VW impacted MSS only from 21st Sep.

@chiragjain1976 Perdon my ignorance - but I do not have much information on this company, so asking for the pointers.

  1. You mentioned, it has a high quality management. Can you refer me the source?
  2. What makes MS a great company?

Strangely I couldn’t find a single thread in VP forum that talks about any of the above.

I think the correct question to ask oneself is -

  1. What will happen id VW probe spreads to Europe? Will I be comfortable if the VW pie is removed from the revenue. Does 250 a share justify that?
  2. Is the CAPEX going to help the business grow faster than average?
  3. What do you think of the management integrity and ability to run business?

I think a positive to all the above is a good reason to start building a position.

Disclosure: I am invested

may be out of topic, but somehow I did not like Mr. Sehgal’s tone in the interview given to money control yesterday (link above). He is all the time taking defensive to the questions asked and was on the verge of losing balance. People are bound to ask questions as they do not know about the company as much as a CEO would, so he should have maintained cool and explained the situation in a better tone. Also, I did not like the over confidence in his voice in achieving 18 billion USD revenue targets. I prefer modest managements no matter how easy it is to achieve the targets and I’m ok even if I go wrong by not partnering with Mr. Sehgal. Anyway, I’m going out of topic.

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First thing is You can’t Judge Vivek Chaand through one interview. Please go through the AR and concall you would come to know what this Guy has built Motherson Sumi.
For people interested in knowing how has he built the story please find attached Forbes India article. Please take the pain to read and understand how has the company evolved. Crisis do come and we have to see what the Management is doing to address that issue. Dont you think the crisis is giving you a chance to load.
Please have a look at the following interview and story of Motherson Sumi


Also please find latest video

Thanks and Best Regards

Disclosure : Invested

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Volkwagen’s admission of not complying with emission standards for some of its diesel models in the US poses a potential threat to the prospects of motherson sumi, if the fallout extends beyond North America. If the issue is contained there then the impact is likely to be very limited.

Key takeaways from the management conference call :blush:

  1. The current development should not be seen as anything different from a vehicle recall that other car manufacturers have carried out over the years

  2. VW has only stopped selling the diesel cars to the US, while sale of petrol vehicles continue.

  3. For MS so far nothing majorly adverse has happened and it is business as usal.

  4. Hypothetically if VW’s global market share goes down because of this development, it is possible that MS may not be impacted as some other OEM which takes up the slack is also a MS customer.

  5. VW constitutes 12% of MS’s sales, most of which are to Europe. Mexico forms a small 1-1.2% of the same.

  6. MS re-iterated its targets to be a globally preferred solution provider, and to achive 3CX15 ( no customer, no component and no country should have greater than 15% share of revenues by FY20).

I have very high regards for the MQ of MS and its guidance because history has shown that they have delivered, what guidance they have given

Disc : Invested

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I observed the same in the last earnings con call. someone asked about the possibility of being squeezed by the companies they supply to. (margin pressure related question). he was very upset with that question and replied in a very arrogant manner. his tone was very bad. he said they were not a vegetable vendor or something like that. ( i don’t remember the exact words)

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Couple more forbes articles

To my untrained eye EOD chart shows trend reversal with volume today. It would be nice if someone like @hitesh2710 or @ajit001 can give an opinion.

Disclosure :- I frequently make mistakes with charts. Do not base your trades on my analysis

With a market cap of over 30000 crore and PE of almost 37-38 on trailing basis this still looks expensive. I find correction an excuse to bring it to may be normalized PE levels.

  • motherson derives more than 85% of sales from exports and this are saturated markets so what will be demand growth there
  • what will be effect of disruptive tech. like uber (ease of hiring &car sharing may reduce overall demand )
  • till now company as grown by acquisition weather they can continue same is also a question
  • as they operate in space which is labor intensive are there any hidden future exp. **like pension liabilities (**because seller is not fool to sell good company (which can be turn around easily) so cheap)

Consolidated TTM p/e is 20.55 according to screener