Despite the strong growth in topline, and all-time high margins at most group companies, the stock, as per Jefferies, trades at 34 times FY22 earnings estimates and 28 times FY23 earnings estimates versus the long-term average of 20 times and 2015/2017 peaks of 28-29 times
MUMBAI: Motherson Sumi Systems Ltd reported a decent performance for the March quarter (Q4), with consolidated net sales rising more than 17%. Order inflows, too, were strong. But the company's shares fell over 6% on Thursday. This has more to do with the company's stretched valuations, than the Q4 results.
Analysts at Jefferies India Pvt Ltd said, “We like company’s good earnings growth outlook; we believe valuations have turned too expensive after the sharp current year to date rally."
Despite the strong growth in topline, and all-time high margins at most group companies, the stock, as per Jefferies, trades at 34 times FY22 earnings estimates and 28 times FY23 earnings estimates versus the long-term average of 20 times and 2015/2017 peaks of 28-29 times.
"When compared to the blended average Price to Earnings of Maruti (the benchmark for the India business) and global auto-component companies, Motherson is now trading at 45% premium versus historical average of 25%," added analysts at Jefferies in their note.
Some have attributed the correction in the stock to profit booking, given that the shares have surged 85% since their January lows.
“Motherson 4QFY21 performance was a beat, led by strong performance in India and Samvardhana Motherson Peguform (SMP)as well as lower tax," said analysts at Motilal Oswal Financial Services Ltd. They expect it to continue to benefit from a cyclical recovery in its key businesses as well as from a strong order book and improving efficiencies at Samvardhana Motherson Automotive Systems Group BV.
As pointed earlier, the Q4 results weren't all that bad.
The recovery over the past few quarters has been led by a strong traction seen in domestic as well as international markets. While there are uncertainties about the impact of the near-term disruption caused by the renewed surge in coronavirus cases in India, global auto demand has been rebounding.
"We believe the company is well-placed to capitalise on the recovery in auto demand from FY2022 onwards. It is well-poised to benefit from the increase in electronics content per vehicle in passenger vehicles and the shift towards electric vehicles globally, given strong order wins," said analysts at Kotak Institutional Equities in their note.
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Never miss a story! Stay connected and informed with Mint.
our App Now!!