This Small Cap Company Stock Can Deliver 42% Gain, Motilal Oswal Suggest “Buy”

Motherson Sumi Wiring India Ltd, a leading manufacturer of wiring harnesses has reported decline in profits for the quarter on February 7, 2023, but Motilal Oswal sees potential in it. The brokerage has recommended investors to buy the stock of this small cap company for it believes the price will appreciate by upto 42%, based on the estimates.

3QFY23 Revenue of Motherson Sumi Wirings

The brokerage report shared the insights about the quarterly numbers of Motherson Sumi Wiring India Ltd and they were not appealing, but margins showed improvement. "Revenue grew 16% YoY to Rs16.9 billion, but EBITDA / adjusted PAT declined 11% / 20%YoY to Rs 1.8 billion / Rs 1.06 billion, respectively. 9MFY23 revenues / EBITDA / adjusted PAT grew 31%/ 15%/13.5% YoY, respectively. Gross margins improved 190 basis points QoQ (down 20bp YoY) to 35.7% (v/s est 35%), benefiting from lag actualization of cost recovery EBITDA margins eroded 310 basis points YoY (up 70bp QoQ) to 10.6% (v/s est 10.2%), adversely impacted by new plants related cost (incl. manpower), Forex loss on Japan-Rupee movement (of Rs 100 million), and one-off cost of Rs 40 million. EBITDA declined 11% YoY (flat QoQ) to ~Rs 1.8b (inline). Further, lower 'other income' restricted PAT growth to Rs 1.06 billion (v/s est Rs1.1b) (down 20% YoY)

Management guidance

In the brokerage report, Motherson Sumi Wiring India Ltd's management guidance stated that the company has developed 11 new models and will develop 6 more. Together these 17 models would contribute approximately 40% of the business after the launch in 3 to 6 months. Plus there are 4 facelifts done in passenger vehicles in the 9 months of this fiscal year. Ramping up of two facilities, one in Bangalore and one Chennai is in progress and it is expected to have optimum utilization by 1QFY24.

Why buy stock of Motherson Sumi Wiring India Ltd, with a price target of Rs 73 per share?

"The stock trades at 28.2x / 23.5x FY24E / 25E EPS. We believe it deserves rich valuations due to ;its strong competitive positioning, top decile capital efficiencies, and it being a beneficiary of electric vehicles and other mega trends in autos. We reiterate our 'Buy' rating with a target price of Rs73 (~35x Dec'24E EPS)", Motilal Oswal coverage report also explained the reasons for asking investors to buy the stock.

The stock price of Motherson Sumi Wiring India Ltd as per Motilal Oswal estimates would rise by 42% from Rs 51 per share. If you buy the stock at today's current market price of Rs 53.35 per share which shows an intraday growth of 3.89%, you may earn 36.83% return if you hold the stock till the brokerage's estimated target price of Rs 73 per share. 52-week high is at Rs 71.15 per share, while the 52-week low is at Rs 40.45 and the market capitalisation is Rs 23,652.93 crore.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.