Motherson Sumi (one of our stockletter picks) has posted very good third quarter results, with We had recommended the stock on 1 June 2012 at Rs 107. The stock closed at Rs190.45 today, up by 77% in eight months

Automobile ancillary producer and flagship of the Samvardhana Motherson Group, Motherson Sumi Systems, has reported impressive 113% year-on-year (y-o-y) increase in net profit for the quarter ended December 2012, despite sluggish sales, which increased 27% y-o-y to Rs1064.53 crore. Operating profit rose 105% y-o-y for the third quarter, from Rs89.70 crore to Rs184.24 crore. The results are quite good considering that the automobile sector has been badly hit over the last few months.
 

A closer look into the Moneylife database shows that Motherson Sumi has been consistent. It has never reported a decline in net sales in the quarters since 2009, when we began analyzing this company on a quarterly basis. With an exception of December 2011, net sales grew double digits in all the quarters. Net sales grew 27% y-o-y which is less than its three-quarter y-o-y average of 30%. However, operating profit exceeded our expectations when it grew by 105% y-o-y for the December 2012 quarter, way above the 75% y-o-y average growth rate. The return on networth is high at 36%. Its valuation is reasonable, with market capitalisation quoting at over 15 times operating profit.
 

The revenue growth, on a standalone basis, was helped by 27% increase in domestic sales along with 25% increase in exports. Whereas, on a consolidated basis, exports were up by a whopping 87%, domestic sales were up just 28%. The net debt of the company stood at Rs4,308 crore while cash on the books stood at Rs759 crore.
 

The board of directors of the company in its meeting on 12 February 2013, have sought approval of the following through an extraordinary general meeting (EGM) to be held on 18 March 2013:

1. Preferential allotment of shares to Sumitomo Wiring Systems, a promoter of the company up to 14,698,656 equity shares i.e. 2.5% of existing equity shares;
2. Issue of shares to Qualified Institutional Buyers through Qualified Institutions Placement up to 44,095,968 equity shares i.e. 7.5% of existing equity shares.

During the quarter, there were noticeable changes to shareholding structure of one of its subsidiary companies, Samvardhana Motherson Polymers (SMPL), through which Motherson Sumi Systems holds 51% stake and Samvardhana Motherson Finance (name changed to Samvardhana Motherson International) holds 49% stake.
 

SMPL has now informed the following changes in the shareholding of the group:

1. Shareholding in SMP Deutschland GmbH and SMP Automotive Technology Ibèrica S.L. has increased from 80% to 83.72% by acquisition from Cross Industries.
    
2. 50% stake in Wethje Entwicklungs GmbH and Wethje Carbon Composite GmbH has been transferred to Cross Industries for consideration of acquiring aforesaid stake.

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