Motherson Sumi Systems Ltd

Date Published: February 16, 2021

To be a globally preferred solutions provider.

Company Overview:

Motherson Sumi Systems (MSSL), a flagship of Sumi Motherson Group, is a joint venture between Sumitomo Wiring Systems (Japan), Sojitz Corporation (Japan) and the Motherson Group. The group has four divisions namely the wiring harness group, polymer group, tooling group and the strategic business group (manufacturer of automotive mirrors, machined metal components and assemblies). Of these, the wiring harness group is the market leader in India with a 65% market share of passenger car wiring and also contributes 70% to the company`s sales. The company`s automotive segment is a supplier of wiring harness, high-tension cords, wire plastic and rubber components whereas the non-automotive segment manufactures cooling parts for computers and other assemblies. The company follows an effective vertical and backward integration model evident from its various group companies, subsidiaries and JV. For instance, Kyungshin Industrial Motherson (KIML) between Kyungshin Industrial Company (South Korea) and MSSL specializes in manufacturing customer specific wire harnesses. For its strategic business division it has a JV with Schefenacker AG (Germany) for black box designing and manufacturing of rear-vision systems. The company’s manufacturing units are located at Noida and Bangalore. MSSL has received certifications namely ISO/TS 16949:2002 for quality management system and ISO 14001:2004 environmental management system. The company also has manufacturing bases located at Sharjah, UAE and UK. MSSL supplies its products to overseas markets such as Asia, Middle East, Europe and USA. MSSL is the largest manufacturer of wiring harnesses in India.

Industry Overview:

The Indian auto-components industry has experienced healthy growth over the last few years. The auto-component industry of India has expanded by 10.6 per cent to reach at a level of US$ 56.2 billion in FY19. The auto-components industry accounts for 2.3 per cent of India’s Gross Domestic Product (GDP) and employs as many as 1.5 million people directly and indirectly each. A stable government framework, increased purchasing power, large domestic market, and an ever-increasing development in infrastructure have made India a favourable destination for investment. The Indian auto-components industry can be broadly classified into the organised and unorganised sectors. The organised sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-value precision instruments while the unorganised sector comprises low-valued products and caters mostly to the aftermarket category. India’s exports of auto components increased at a CAGR of 8.34 per cent, during FY14-FY19, with the value of auto component exports increasing from US$ 10.16 billion in FY14 to US$ 15.17 billion in FY19. This has been driven by strong growth in the domestic market and increasing globalisation (including exports) of several Indian suppliers. According to the Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is expected to register a turnover of US$ 100 billion by 2020 backed by strong exports ranging between US$ 80- US$ 100 billion by 2026.

Company Operations:

The company operates through eight business divisions: wiring harnesses; rear view mirrors; polymers and modules; elastomers; metal working; IT, software and technology; manufacturing support; and aerospace defense and security.

  • Under wire harnessing division, the company manufactures components such as connectors, grommets, relay boxes, wires, terminals, junction boxes and protectors. It also manufactures wiring harnesses for medical diagnostic equipment and other electrical and electronic equipment. These products find its applications in passenger cars, two & three wheelers, farm and material handling equipment, commercial vehicles, multi utility vehicles and off-road vehicles.
  • MSSL rear view mirror division is engaged in supplying interior mirrors, exterior mirrors and camera-based detection systems for automotive industries. It offers side turn indicator lamps, telescopic trailer tow mirrors, automatic dimming EC glasses, heated glasses, integrated turn signals, and electric power-folds.
  • The company’s polymers and module division is involved in supplying interior and exterior modules as well as polymer parts to the automotive industry. It offers door panels, spoilers, mud guards, roof rails, hard trims, handles, and other interior and exterior parts.
  • Under elastomer division, the company provides solutions ranging from rubber compounding to injection moulded rubber parts, moulded liquid silicon parts, bonded parts and extruded rubber components for a spectrum of industries. It offers suspension bushes, bellows, damper rings, bump stops, tank straps, glass run, and rubber flares, among others.
  • MSSL metal working division, the company manufactures cutting tools, gear cutting tools, aluminium die casted parts, sintered metal parts, clutch for car ac compressors, thin film coating metals and precision machined parts. It also provides thin film coating services.
  • The company’s IT, software and technology division provides IT services and solutions to its clients. Its service offering include consulting and ERP solutions. Through advanced technology, it offers mobility solutions, cloud services, internet of things (IoT), big data and analytics, shared services, and infrastructure and managed services, among others.
  • Under manufacturing support division, the company offers products and services which include auxiliary equipment for injection moulding machines, spray guns, paint coating equipment, air compressors, and automotive manufacturing engineering services.
  • MSSL aerospace defense and security division provides integrated solutions to its clients across the world.

Products:

The company manufactures a range of harness such as automotive harness, material handling earth moving farm equipment harness, consumer electronics harness, medical equipment harness, office automation products harness, electronic equipment harness, lead wires harness, high tension cords harness and battery cables harness. MSSL, as a supply partner, provides complete solutions to its customers right from product design to mass supplies. MSSL has expertise in project management.

Geographical Spread:

The Company’s consolidated sales grew by 12% to Rs. 625,716 million, with 88% of consolidated sales coming from outside India. With significant contribution in sales growth from outside India and ability to serve customers globally, the Company now ranks as a global player in the automotive component industry

Exports from India:

With a diverse global customer base of nearly all leading automobile manufacturers globally, the company has a presence in 41countries across six continents. MSSL is currently the largest auto ancillary in India and among the Fab 50 companies of India by Forbes magazine. MSSL is the flagship company of the Samvardhana Motherson Group (SMG)ranked 23rdamong global automotive suppliers by Automotive News. The Company’s exports during the year 2018-19 were Rs. 9,878 million as against Rs. 8,402 million in the previous financial year. The Company continues to make its efforts towards achieving higher growth by providing cost competitive quality solutions to its customers. In addition, the Company has facilities globally, to provide service to the customers as well as enhance customer relationships.

Business reorganization to drive better value discovery of global business:

MSS has proposed reorganization of business within the group with objective of (a) addressing long-standing request of Sumitomo (25.34% stake in MSS) for keeping its participation focused on India wiring harness business and (b)  consolidating/simplifying the structure for minority shareholders. This will lead to acquisition of balance 49% stake in SMRPBV (HoldCo for mirrors and plastic  part business) from SAMIL (Promoter owned HoldCo of MSS) through share swap with MSS. The proposed structure will create two listed entities: (a) India wiring harness business and (b) Global businesses + other India businesses. This will drive better value discovery of the global business and also give minority shareholders the option of investing in either or both of the businesses. SMP’s US plant continues making progress with manufacturing ramp-up (10% QoQ); further ramp-up will be based on Daimler’s requirement. It is yet to reach optimum utilization, which is likely in the next 3-6 months.

Our View:

Motherson Sumi System Ltd. has always strongly focused on creating more value for customers, investors and its employees through organic and inorganic growth. Over the years, MSSL has never lowered its targets in response to external challenges such as Y2K, the Lehman crisis, political turbulences or economic downturns. Instead,have constantly focused on dealing with challenges by strengthening capabilities and improving. Over the years MSSL has successfully collaborated with global technology leaders to further enhance its competency to create technologically sound products in state-of-art facilities and infrastructure to ensure superior efficiencies & total customer satisfaction.MSSL has taken new and innovative technologies to fast-growing and developed markets through its research-oriented approach. Combined with successful partnerships with technology leaders over the years, the company has further enhanced its competencies by incorporating global best practices. MSSL endeavours to seamlessly blend design, infrastructure and technological competencies, expanding the product range and ensuring close proximity to customers.As the end of the 2020 plan approaches, MSSL aims to expand and consolidate its global operations further. With over 230 facilities across 41 countries, MSSL operates close to its customers globally. By delivering on the needs and requirements of customers, investors, employees and the communities where it operates, MSSL drives its own growth.

 As per the mean estimates of earnings projections made by brokers at Bloomberg, the estimated EPS for FY2021 and FY2022 stands at Rs.2.04 and Rs.3.58 respectively as compared to EPS of Rs.2.85 for FY 2020. The stock is trading at a PE of 20.42. Therefore, taking into consideration this recommendation of  Motherson Sumi Systems Ltd is being given for 1 year time horizon.

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