Motherson Wiring revenue growth and EV mix support margin recovery outlook

Investment View and 1QFY27 Performance

Motilal Oswal Financial Services retained its Buy view on Motherson Wiring after 1QFY27 results. Revenue outperformed expectations, although profitability was affected by higher copper prices and wage costs. The broker expects margins to gradually normalise in subsequent quarters as copper price pass-through is reflected in reported financials.

Motherson Wiring reported 1QFY27 revenue of Rs 3,407 crore, up about 37 per cent year on year and ahead of Motilal Oswal’s estimate. Growth was supported by the ramp-up of new customer programmes and the pass-through of higher copper prices. Management indicated that around 7 per cent of revenue growth came from copper price pass-through, with the balance driven by volume growth and higher content per vehicle. EV-related business increased to about 8.5 per cent of quarterly revenue.

Margin Pressure from Copper and Wage Costs

Profitability was weaker than the broker expected. Copper prices rose about 7 per cent quarter on quarter and 53 per cent year on year, averaging Rs 1,348/kg in 1QFY27. Higher copper costs and significant minimum-wage revisions across several states drove the margin miss.

Minimum wages in the NCR region increased by 35-40 per cent, materially above management expectations, and were the main reason for the sequential increase in employee costs. Management is engaging OEMs for compensation and intends first to secure full cost pass-through, then restore margins through localisation and operating efficiencies.

Motherson Wiring remained net debt-free despite near-term margin pressure associated with greenfield plants. FY27 capex is expected to be funded entirely through internal accruals.

Greenfield Utilisation and Margin Recovery

Management reported stable sequential utilisation at its greenfield facilities: Kharkhoda at 80 per cent, Pune at 50 per cent and Navgam at 60 per cent. Kharkhoda and Navgam were progressing to plan, while Pune faced ramp-up challenges.

Management expects greenfield operations to contribute positively to profit over the next one to two quarters as utilisation improves. Copper is the only major raw material with a contractual pass-through mechanism for most customers, although the mechanism has a one-quarter lag.

Earnings Estimates and Forecasts

Motilal Oswal reduced its FY27E and FY28E EPS estimates by 7 per cent and 1 per cent, respectively, after the weaker-than-expected first-quarter performance. Its revised estimates imply revenue, EBITDA and PAT CAGRs of 16 per cent, 20 per cent and 21 per cent, respectively, over FY26-FY28E.

Investment Thesis and Valuation

The Buy thesis rests on Motherson Wiring’s more than 40 per cent share of the Indian wiring-harness market and its largely domestic business, with over 95 per cent of revenue generated from India. Motilal Oswal sees scope for content expansion from premiumisation, electrification and connected vehicles.

The broker also highlights the company’s efficiencies, economies of scale, healthy margins, high asset turnover, low capex needs, capital efficiency and cash-flow generation. It considers valuations of 38 times FY27E EPS and 29 times FY28E EPS justified by these attributes. The Rs 48 target price is based on 35 times FY28E EPS.

Key Factors Affecting the Thesis

• The pace and effectiveness of copper price pass-through, including the one-quarter lag in the contractual mechanism.
• Further escalation in wage costs, particularly following the increase in minimum wages in the NCR region.
• The pace of the Pune greenfield plant’s ramp-up and the utilisation trajectory of greenfield facilities.
• The timing and extent of margin recovery through cost pass-through, localisation and operating efficiencies.