ProfitNama

ProfitNama

Analyzing Motherson Sumi Wiring : Stock Analysis December 2023

Analyzing Motherson Sumi Wiring - A Leading Ethanol Plant Supplier : Stock Analysis December 2023

Disclaimer:

The analysis and opinions provided are for educational and informational purposes only. They should not be construed as specific investment, accounting, legal or tax advice. 

Should We Buy, Sell or Hold This Stock and Why?

The company has strong financials with good profitability (OPM of 11%), high return on capital (ROCE of 44%) and return on equity (ROE of 40%). The debt levels are also low at 0.21 debt to equity. Promoter holding is high and constant at 62%. The valuation is high with P/E of 52. Overall the company fundamentals are strong, but valuations are stretched. We can look forward to  suggest holding the stock.

Vital Company Ratios for a Layman:

  • Profit Margin (OPM) – 11%
  • Return on Capital (ROCE) – 44%
  • Return on Equity (ROE) – 40%
  • Debt to Equity – 0.21
  • Price to Earnings (P/E) – 52.3
  • Promoter Holding – 62%

Which are the competing companies and how it is performed compared to them?

Key competitors are Tube Investments, Samvardhana Motherson, Bosch and Uno Minda. This company has higher operating margin, return on capital and lower debt to equity ratio compared to most competitors showing it has better profitability and balance sheet strength. However, valuations as measured by P/E ratio are higher.

Positive factors to consider:

  • High OPM: The company has a healthy operating profit margin (OPM) of 11%, which signifies efficient operations and profitability.
  • Low Debt to Equity Ratio: MSWIL has a low debt-to-equity ratio of 0.21, indicating a strong financial position and manageable debt levels.
  • Cash Equivalents: The company has a decent amount of cash equivalents (₹ 16.4 Cr.) as a buffer for potential financial needs.
  • Improving OPM: The company’s OPM has shown an improving trend in recent quarters, which is a good sign for future growth.
  • Promoter Holding Constant: Promoters hold a significant portion of the company shares (61.75%), demonstrating their commitment and confidence in the business.
  • Healthy Dividend Yield: The company offers a decent dividend yield of 1.05%, providing passive income for investors.
  • Industry Growth: The auto ancillary industry is expected to grow at a healthy pace in the coming years, which could benefit MSWIL.

Negative factors to consider:

  • Overvalued: The stock is currently trading at a high P/E ratio of 52.26, indicating it might be overvalued compared to its peers.
  • Pledged Percentage: While the pledged percentage is currently low (0.21%), any increase in the future could be a concern.
  • Lowering OPM: The OPM has shown a slight decrease in the latest quarter compared to the previous quarter, which needs to be monitored.
  • High Pledged Holding: The high pledged holding by promoters (0.21%) could indicate potential financial pressure or lack of confidence in the business.

Overall:

MSWIL presents a mixed bag of positive and negative factors. The company has strong fundamentals, a healthy financial position, and operates in a growing industry. However, the stock may be overvalued, and the pledged holding needs to be monitored. Therefore, a Hold recommendation is suggested for now, with close observation of future performance and market conditions.

Is This Stock Overvalued or Undervalued?

With a high P/E ratio of 52.3 compared to the industry average of 33.4, the stock appears overvalued currently based on earnings. However, financial performance is strong.

Should We Buy This Stock and Why?

I would recommend holding the stock currently instead of buying more given the high valuations. The company has demonstrated good growth and profitability but further upside is limited due to already high valuations. One can hold for the healthy dividend yield.

How Is the Industry of This Company Growing?

The auto ancillary industry is expected to grow at 12-15% over next 5 years, driven by increasing vehicle production and steady growth expected in automobiles sector. This offers good growth potential for companies in this space.

How This Company Is Going to Perform Long Term?
Given the strong financial performance, growth opportunities in the sector and high promoter shareholding, the company is well positioned for long term growth. It should be able to deliver 15-20% EPS growth over next 3-5 years.

How This Company Is Going to Perform Short Term?

In the near term, upside looks limited due to demanding valuations. Stock may remain rangebound and deliver returns largely in line with broader markets over next 12 months.

error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here