Fundamental Analysis of Motherson Sumi Wiring: Last year Motherson Sumi Systems announced the demerger of its domestic wiring harness business. Later, the demerged company was listed. These developments catch our attention as an investor. Such corporate developments sometimes mint attractive investment opportunities for investors.
In this article, we shall attempt to perform a fundamental analysis of Motherson Sumi Wiring, the demerged entity of the Motherson Group.
Fundamental Analysis of Motherson Sumi Wiring
In this article, we shall perform a fundamental analysis of Motherson Sumi Wiring India (MSWIL). We’ll start by getting ourselves acquainted with the history and business of the company, followed by an industry overview. Later, a few sections are devoted to revenue, return ratio, and debt analysis. A highlight of the future plans and a summary conclude the article at the end.
Company Origins, Demerger, and Present Structure
Motherson Sumi Wiring India Ltd. or MSWIL dates back its history to 1986. Motherson Sumi Systems Ltd. (MSSL) was incorporated as a joint venture company between the Motherson Group, India, and Sumitomo Wiring Systems, or SWS, Japan.
The JV used to manufacture wiring harnesses for Maruti Udyog. It was listed on the Indian stock exchanges in 1993. Over the years, MSSL grew into a global OEM supplier of wiring harnesses, vision systems, modules & polymer products, elastomers, and other auto-ancillary products.
In the latest development, the domestic wiring harness (DWH) business of MSSL was demerged from the company in 2021. After the merger, the name of MSSL was changed to Samvardhana Motherson International Ltd. (SAMIL).
The demerged business was subsequently listed on the exchanges in March 2022 as Motherson Sumi Wiring India Ltd. That is how MSWIL came into existence. Presently, 33.4% of MSWIL is held by its parent company SAMIL. SWS holds a 25.10% stake in the company.
The need for the demerger was long due. It was done because Sumitomo Wiring Systems of Japan wanted to keep its involvement focused on the wiring harnesses business in India. It was the initial business interest in 1986 which led to the establishment of the JV itself.
We now know about the recent developments at the Motherson Group. In the next section, we understand the business of MSWIL and the scale at which it operates.
Company Overview and Businesses
Motherson Sumi Wiring India (MSWIL) is a preferred supplier of wiring harnesses to leading automobile manufacturers. It manufactures products for a broad range of vehicles: 2-wheelers. 3-wheelers, farm equipment, and off-road, passenger & commercial vehicles.
The auto-ancillary company has a strong workforce of more than 40,000 employees. The manufacturing plants, module centers, assembly centers, units for service businesses, tech centers, and representative offices together make up 23 facilities of the company. This gives it a pan-Indian presence.
Its range of services covers printed circuit boards, 3D computer-aided design, design & routing, 3D printing, virtual & physical validation, prototyping, and technology implementation support.
It benefits immensely from the strong parentage of SWS. SWS is a global leader in the manufacturing of wiring harnesses. The parent offers vast product development expertise in terms of R&D and technical support.
We are now acquainted with the origins and business of the company. Let us now move on to understand the auto-ancillary landscape as part of our fundamental analysis of Motherson Sumi Wiring India Ltd.
Industry Overview
Auto-ancillary industry growth is directly dependent on auto-sector growth. The whole automotive industry in India has seen degrowth in the last few years. Presented below are the production numbers from the Society of Indian Automobile Manufacturers (SIAM).
(figures in thousands)
| Category | FY 2018-19 | FY 2019-20 | FY 2020-21 | FY 2021-22 |
| Passenger Vehicle | 4,028 | 3,425 | 3,062 | 3,651 |
| Growth (PV) | nil | -15% | -11% | 19% |
| Commercial Vehicle | 1,112 | 757 | 625 | 806 |
| Growth (CV) | 24% | -32% | -17% | 29% |
| Three-wheelers | 1,269 | 1,133 | 614 | 758 |
| Growth (3-W) | 24% | -11% | -46% | 23% |
| Two-wheelers | 24,500 | 21,033 | 18,350 | 17,714 |
| Growth (2-W) | 6% | -14% | -13% | -3% |
But the data also tells that except for two-wheelers, the other segments of the Indian industry bounced back in the recent fiscal.
Market experts say that after years of drought, the Indian auto industry is at the cusp of a boom as demand is back. Going forward, rising disposable incomes, better monsoons, easing inflation, stable fuel prices, and commodity cost decline will bring growth to the automotive industry in India.
Motherson Sumi Wiring – Financials
Revenue and Net-Profit Growth
This section is devoted to revenue and net profit growth as part of our fundamental analysis of MSWIL.
Motherson Sumi Wiring was incorporated on July 2, 2020. Therefore, the figures of FY21 only take into account operations for 9 months from July 2, 2020, to March 31, 2022. This renders the performance in two fiscals incomparable.
The table below presents the revenue, net profit, and operating margins of Motherson Sumi Wiring India for the last two years.
| Particulars | FY21 (from 02/06/22 to 31/03/22) | FY22 |
| Revenue (Rs. Cr.) | 3,938 | 5,635 |
| Net Profit (Rs. Cr.) | 396 | 411 |
| OPM (%) | 14.04 | 12.95 |
| NPM (%) | 10.06 | 7.29 |
Return on Average Capital Employed
Even though the company was incorporated recently, the domestic wiring harness business had been part of Samvardhana Motherson International for years.
The annual Report for FY 2021-22 of MSWIL provides the figures for return on average capital employed for the DWH business for the last 4 fiscals. The calculations make necessary proforma adjustments for taking into account the post-demerger scenario.
The figures below highlight the ROACE of Motherson Sumi Wiring’s business for the previous four years.
| Financial Year | ROACE |
| 2022 | 52.32% |
| 2021 | 40.81% |
| 2020 | 55.32% |
| 2019 | 63.68% |
Debt/Equity and Interest Coverage
Having covered the company overview, industry landscape, revenue, and return on average capital of the DWH business; we have now arrived at the debt analysis as part of our fundamental analysis of Motherson Sumi Wiring India.
In the table below, we can note that the debt-to-equity ratio increased from 0.14 to 0.25 in FY22. Similarly, the interest coverage ratio worsened to 26.68. Nevertheless, the debt and interest coverage figures of MSWIL still remain at impressive levels indicating the strong financial position of the company.
| Key Ratios | FY2020-21 | FY2021-22 |
| Interest Coverage Ratio | 79 | 26.68 |
| Debt Equity Ratio | 0.14 | 0.25 |
Motherson Sumi Wiring – Future Plans
So far we have looked at only the history of MSWIL and the past two fiscals’ results. In this section, we shall attempt to understand what lies ahead for the investors of Motherson Sumi Wiring India.
- The management of the company highlighted in its annual report that MSWIL would remain focused on the domestic wiring harness business in the coming future.
- The company made an incremental capital expenditure of Rs 101 crore in FY22.
- Additionally, Laksh Vaaman Sehgal, Director conveyed in the annual report that the management expects a CAPEX in the range of Rs 100 to 150 crore in line with the marginal growth the industry is expected to witness.
Fundamental Analysis of Motherson Sumi Wiring – Key Metrics
We are almost at the end of our fundamental analysis of Motherson Sumi Wiring India. The below presents the key metrics of the auto-ancillary stock.
| CMP | ₹82.8 | Market Cap (Cr.) | ₹26,000 |
| EPS | ₹1.30 | Stock P/E | 63.69 |
| ROCE | 59.4% | ROE | 45.0% |
| Face Value | ₹1.0 | Book Value | ₹3.46 |
| Promoter Holding | 61.7% | Price to Book Value | 23.9 |
| Debt to Equity | 0.25 | Dividend Yield | 0.73% |
| Net Profit Margin | 7.29% | Operating Profit Margin | 12.95% |
In Conclusion
This marks the end of our fundamental analysis of Motherson Sumi Wiring India. We can note that although the financial data is insufficient, the management commentary and present fiscal’s results give a rough idea about the future direction of the company.
It seems Motherson Sumi Wiring India shall largely remain focused on the DWH business and grow in line with the industry. It will be important to track the revenue & profit figures and margins going forward. In addition to this, the low debt level of MSWIL gives the company enough headroom to grow.
In your opinion, should investors hop on to Motherson Sumi Wiring as the demand revives in the Indian automotive industry? Or should they closely track and wait 2-3 quarters more before making an investment decision?
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