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Alpha | Motherson SUMI Wiring India Ltd.


Motherson Sumi Wiring India Ltd. – Premiumisation Play

Motherson Sumi Wiring India Restricted (MSUMI) was established by de-merging the wiring harness enterprise supporting its clients in India from its mother or father firm Samvardhana Motherson Worldwide Restricted (SAMIL) [Formerly Motherson Sumi Systems Limited]. MSUMI is a number one and fast-growing full-system options supplier to OEMs, within the wiring harness section in India. It’s a three way partnership between Samvardhana Motherson Worldwide Restricted (SAMIL) and Sumitomo Wiring Programs, Ltd. (SWS).

MSUMI has a product profile that advantages from beneficial trade developments of premiumisation, which ends up in a rise in vehicle electrification, and helps present and future automotive developments. With over 40,000 workers in 26 services, the corporate has a diversified PAN India industrial footprint, near OEM areas.

Merchandise & Companies:

The Firm is within the manufacturing of Wiring Harness & its Elements majorly bought to Authentic Gear Producers (OEMs). It affords world-class expertise and broad expertise in manufacturing, meeting, and in-sequence supply of built-in, cutting-edge electrical and digital distribution programs for energy provide and knowledge switch throughout car sorts (passenger automobiles, two-wheelers and three-wheelers in addition to leisure, industrial and multiutility automobiles), worth ranges (from entry-level to mid-range and premium degree) and manufacturing areas.

Subsidiaries: As on FY22, the corporate has no Subsidiary, Affiliate or Joint Enterprise firm.

Key Rationale:

  • Market Chief – MSUMI is the market chief within the home wiring harness trade with a market share of greater than 40%. Put up demerger, the corporate turned a Home pure play wiring harness participant which derives nearly 95%+ of its income from the Indian market. The Indian Passenger vechicle (PV) trade development is essential for the corporate’s development since 60% of its income is derived from the PV trade.
  • Premiumisation Play – Globally, the automotive trade is present process few megatrends like electrification, premiumisation, Related & Autonomous Autos (ADAS know-how), Software program outlined Autos, and so forth. MSUMI being a frontrunner in Wiring harness (WH) enterprise with value efficiencies goes to profit from the above developments as they’ll result in a rise in wiring content material per car. With WH content material of EV is presently 2x of the ICE automobiles, the corporate has setup a devoted line at Chennai for high-voltage harnesses to satisfy the demand for EV/hybrid automobiles (PV, CV & Two-Wheeler). WH usually constitutes ~1.75-2.25% of the worth of a car and the rising gross sales of excessive and mid finish UV’s is instantly contributing the expansion of the WH market.
  • Q3FY23 – Throughout Q3FY23, the income grew 16% YoY/-8% QoQ to Rs.1687 crs. The EBITDA for Q3FY23 down by 14% YoY/6percentQoQ to Rs.179 crs on account of excessive empolyee value and different prices. Greater working prices because of decrease manufacturing at OEMs on QoQ foundation, resulting in decrease utilisation of added capacities. The inflation within the wages is the essential trigger for the rise within the worker value. The capex for Q3FY23 stands at Rs.61 crs. In Q3FY23, the corporate added 3 new services (26 now, in comparison with 23 earlier) and enhanced general capacities by over 25% by way of manhours in comparison with Q3FY22.
  • Monetary Efficiency – FY22-23 is the primary reporting monetary yr for MSUMI as unbiased public listed firm (Group reorganisation applied in Jan–March 2022 quarter with approval of Hon’ble NCLT, Mumbai. Throughout FY23, MSUMI expanded capability (Capex of 9MFY23 is Rs.147 crores) according to clients forecasted necessities in addition to orders for brand new fashions/packages awarded to firm. The corporate developed merchandise for 11 new/full mannequin change and 4 facelift mannequin within the passenger car section throughout first 9 months and is at the moment engaged on 6 new/full mannequin modifications which might be launched in subsequent 3-6 months. These will contribute almost 40% of the full enterprise of the corporate, requiring the corporate to rent and prepare further manpower (approx. 7000 folks) upfront for profitable launch of those packages. The corporate has the trade main return ratios, Asset turns and margins. The corporate had a income development of 9% CAGR between FY17-22 outperforming the Passenger Car Trade development for a similar interval.

Trade:

India is predicted to be the world’s third-largest automotive market by way of quantity by 2030. India holds a powerful place within the worldwide heavy automobiles enviornment as it’s the largest tractor producer, second-largest bus producer, and third largest heavy vehicles producer on this planet. It’s also the world’s largest 2W and 3W producer. India’s Automotive Trade is value greater than $222 Bn and contributes 7.1% of India’s GDP & 49% of its manufacturing GDP. Passenger automobiles posted highest ever retail gross sales at 36,20,039 models in FY 2022-23 with a development of 23% YoY. The Total EV gross sales in India additionally reached a report mark of greater than 1 million models in a monetary yr (FY23). The EV market is predicted to develop at CAGR of 49% between 2022-2030 and is predicted to hit 10 Mn-unit annual gross sales by 2030. India automotive wiring harness (WH) market is at the moment ~US$1.5bn vs ~US$20bn of Asian WH market and international WH market dimension of ~US$40bn.

Progress Drivers:

  • Within the Union Finances 2023, the federal government has elevated the price range allocation of FAME II subsidy by 78% to Rs.5172 crs.
  • Rise within the buyer desire in direction of premiumisation (linked/autonomous automobiles) and electrification is more likely to drive the wiring harness trade.
  • The Manufacturing Linked Incentive (PLI) Scheme for Vehicle and Auto Element profitable in attracting proposed funding of Rs.74,850 crore in opposition to the goal estimate of funding Rs.42,500 crore over a interval of 5 years.

Opponents: Minda Company.

Peer Evaluation:

The corporate’s closest home friends are working within the unlisted area particularly Yazaki India, Aptiv India, and so forth. Within the home listed area, we took Minda company for comparability because it has a negligible quantity of income technology from the wiring harness options and it’s clear that MSUMI has a close to monopoly standing within the wiring harness area. The return ratios and margins of MSUMI are additionally manner forward of its friends.

Outlook:

Began its journey as a ‘Construct-to-Print’ participant within the home wiring harness with Maruti Suzuki, the corporate has now advanced as a full-system answer supplier and has constructed massive operational scale with sheer dominance over its opponents. Robust assist from its mother or father corporations Samvardhana Motherson Worldwide Ltd. (SAMIL) – for sourcing of wires and elements, sharing of frequent assist capabilities, strategic steering and leasing of land and constructing) and Sumitomo Wiring Programs (SWS) – entry to main applied sciences will assist the MSUMI to maintain the dominance within the home wiring harness trade. The corporate guided for ~1.5x wiring harness content material in an SUV vs. a hatchback automobile whereas the identical print for sedan was at ~1.4x. Additionally, ~1.2x wiring harness content material in a high variant of PV mannequin vs. the bottom variant and ~1.1x wiring harness content material in a high 2-W variant vs. base variant. Within the EV Section, the corporate has guided for ~2.4x wiring harness content material in an electrical PV vs. ICE pushed PV and ~8x wiring harness content material in an electrical 2-W vs. ICE powered 2-W. The Group additionally reiterated its income goal of US$36 billion by FY25 with 40% RoCE & 40% dividend payout. It additionally goals to grasp 75% of revenues from the auto area and relaxation 25% from non-auto area.

Valuation:

MSUMI is a powerful play within the recovering Passenger Car trade with sturdy fundamentals and constructions a long-term development with the rise in content material per car by electrification and Premiumisation. We suggest a BUY score within the inventory with the goal worth (TP) of Rs.60, 40x FY25E EPS.

Dangers:

  • Shopper focus Threat – MSUMI has a excessive focus of enterprise in PVs and notably with MSIL (Maruti Suzuki India Ltd.). It enjoys ~60% pockets share of MSIL. Any market share loss on the OEM degree may impression MSUMI gross sales negatively.
  • Know-how shift – With the trade shifting in direction of electrification, which wants extra wiring and cables whereas concurrently specializing in light-weight would wish the emergence of newer know-how. It will scale back the load of wires or any improvement in wi-fi know-how can considerably hamper MSUMI’s enterprise.
  • Uncooked Materials Threat – Any main inflation in copper prices or different key enter commodity prices like that of aluminium or polymers would impression gross margin, as it will be powerful for the corporate to move on the margin.

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