Motherson Sumi Wiring India Ltd. – Premiumisation Play
Motherson Sumi Wiring India Restricted (MSUMI) was established by de-merging the wiring harness enterprise supporting its prospects in India from its father or mother 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 tendencies of premiumisation, which results in a rise in car electrification, and helps present and future automotive tendencies. With over 40,000 workers in 26 services, the corporate has a diversified PAN India industrial footprint, near OEM places.
Merchandise & Providers:
The Firm is within the manufacturing of Wiring Harness & its Parts majorly offered to Unique Tools Producers (OEMs). It provides world-class expertise and broad expertise in manufacturing, meeting, and in-sequence supply of built-in, cutting-edge electrical and digital distribution methods for energy provide and information switch throughout car sorts (passenger vehicles, two-wheelers and three-wheelers in addition to leisure, business and multiutility autos), value ranges (from entry-level to mid-range and premium stage) and manufacturing places.
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%. Submit demerger, the corporate grew to become a Home pure play wiring harness participant which derives nearly 95%+ of its income from the Indian market. The Indian Passenger vechicle (PV) trade progress is essential for the corporate’s progress 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 many others. MSUMI being a frontrunner in Wiring harness (WH) enterprise with price efficiencies goes to learn from the above tendencies 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 autos, the corporate has setup a devoted line at Chennai for high-voltage harnesses to satisfy the demand for EV/hybrid autos (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 price and different prices. Greater working prices on account of decrease manufacturing at OEMs on QoQ foundation, resulting in decrease utilisation of added capacities. The inflation within the wages is the vital trigger for the rise within the worker price. 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% when it comes to manhours in comparison with Q3FY22.
- Monetary Efficiency – FY22-23 is the primary reporting monetary yr for MSUMI as impartial public listed firm (Group reorganisation carried out in Jan–March 2022 quarter with approval of Hon’ble NCLT, Mumbai. Throughout FY23, MSUMI expanded capability (Capex of 9MFY23 is Rs.147 crores) in step with prospects 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 present engaged on 6 new/full mannequin adjustments which might be launched in subsequent 3-6 months. These will contribute practically 40% of the full enterprise of the corporate, requiring the corporate to rent and prepare further manpower (approx. 7000 individuals) upfront for profitable launch of those packages. The corporate has the trade main return ratios, Asset turns and margins. The corporate had a income progress of 9% CAGR between FY17-22 outperforming the Passenger Automobile Business progress for a similar interval.
Business:
India is anticipated to be the world’s third-largest automotive market when it comes to quantity by 2030. India holds a robust place within the worldwide heavy autos area as it’s the largest tractor producer, second-largest bus producer, and third largest heavy vehicles producer on the planet. Additionally it is the world’s largest 2W and 3W producer. India’s Automotive Business is price greater than $222 Bn and contributes 7.1% of India’s GDP & 49% of its manufacturing GDP. Passenger autos posted highest ever retail gross sales at 36,20,039 items in FY 2022-23 with a progress of 23% YoY. The Total EV gross sales in India additionally reached a report mark of greater than 1 million items in a monetary yr (FY23). The EV market is anticipated to develop at CAGR of 49% between 2022-2030 and is anticipated to hit 10 Mn-unit annual gross sales by 2030. India automotive wiring harness (WH) market is at present ~US$1.5bn vs ~US$20bn of Asian WH market and international WH market dimension of ~US$40bn.
Development 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 the direction of premiumisation (linked/autonomous autos) and electrification is more likely to drive the wiring harness trade.
- The Manufacturing Linked Incentive (PLI) Scheme for Car and Auto Element profitable in attracting proposed funding of Rs.74,850 crore towards 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 specifically Yazaki India, Aptiv India, and many others. Within the home listed area, we took Minda company for comparability because it has a negligible quantity of income era 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 approach 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 rivals. Robust help from its father or mother corporations Samvardhana Motherson Worldwide Ltd. (SAMIL) – for sourcing of wires and elements, sharing of frequent help features, 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 automotive whereas the identical print for sedan was at ~1.4x. Additionally, ~1.2x wiring harness content material in a prime variant of PV mannequin vs. the bottom variant and ~1.1x wiring harness content material in a prime 2-W variant vs. base variant. Within the EV Phase, 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 robust play within the recovering Passenger Automobile trade with robust fundamentals and constructions a long-term progress with the rise in content material per car by way of electrification and Premiumisation. We advocate a BUY ranking within the inventory with the goal value (TP) of Rs.60, 40x FY25E EPS.
Dangers:
- Consumer 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 stage might affect MSUMI gross sales negatively.
- Know-how shift – With the trade transferring in the direction of electrification, which wants extra wiring and cables whereas concurrently specializing in light-weight would want the emergence of newer know-how. It will cut back the load of wires or any growth 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 affect gross margin, as it will be powerful for the corporate to cross on the margin.
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