Motherson Sumi
BSE SENSEX
35,844
S&P CNX
10,522
3 July 2020
Update | Sector: Automobiles
CMP: INR104
TP: INR122 (+18%)
Buy
Motilal Oswal values your support in
the Asiamoney Brokers Poll 2020 for
India Research, Sales and Trading
team. We
request your ballot.
To merge holdco, including other unlisted businesses
Implied valuations for holdco (ex MSS & SMRPBV) – ~INR60b for FY19
PAT of ~INR1.8b
In the follow-up to its Jan’20 proposal to demerge the Domestic Wiring Harness
business and acquire 49% stake in SMRPBV, the board today approved the merger of
SAMIL (holdco) with its unlisted businesses. At the proposed share-swap and
benchmark valuation, the implied value of the other businesses of SAMIL is ~INR60b
for FY19/FY20 derived PAT of the core business at ~INR1.8b/INR0.9b. This solution
simplifies the structure well and aligns the interest of all the stakeholders. However,
considering the limited understanding (as details are limited) of the core businesses of
SAMIL, implied valuations seem to fully capture the medium-term growth potential of
its key businesses. We believe this would drive a better value discovery of the Non-
India Wiring Harness business, also giving the minority shareholder the option to
invest in either or both of the businesses.
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
MSS IN
3,158
327.3 / 4.1
151 / 49
-4/-17/-8
1507
38.3
Financials & Valuations (INR b)
FY20 FY21E FY22E
Y/E March
Specifics of group’s business reorganization proposal
Sales
635.4 587.1 687.4
The Board of Directors of MSS granted in-principle approval for the re-
EBITDA
52.0
45.8 70.9
organization of business with the group:
Adj. PAT
11.7
6.9 17.4
EPS (INR)
3.7
2.2
5.5
The demerger of the Domestic Wiring Harness (DWH) business of MSS into a
EPS Gr. (%)
-27.5 -41.0 152.7
new company that shall have mirror shareholding as MSS and shall be listed.
BV/Sh. (INR)
35.7
37.2 40.9
The Board of Directors today approved the merger of SAMIL into MSS.
Ratios
SAMIL is the promoter-owned entity owning 49% stake in SMRPBV and
Net D:E
0.5
0.5
0.2
other auto component & allied businesses. In the original proposal, it was
RoE (%)
10.5
6.0 14.1
proposed to merge just 49% stake of SMRPBV into MSS.
RoCE (%)
6.4
4.9 11.1
Payout (%)
31.5
31.5 31.5
Post the demerger of the DWH business, SAMIL would be merged into
Valuations
MSS. The share-swap ratio is proposed at 51 share issues of MSS (of INR1
P/E (x)
28.0
47.4 18.8
face value) for every 10 shares of SAMIL (of INR10 face value). This merged
P/BV (x)
2.9
2.8
2.5
entity would be renamed Samvardhana Motherson International Ltd
Div. Yield (%)
1.0
0.6
1.4
(SMIL).
FCF Yield (%)
9.7
1.5 10.3
The demerger of the India Wiring Harness business would not include the
Mr Laksh Vaaman Sehgal, Director,
MSS stated,
“This Transaction
provides MSSL shareholders with
the opportunity to participate in
100% value of SMRP BV and also
brings all auto-related businesses
under listed entities, which aligns
interest of all stakeholders.”
50% JV with Kyungshin Industrial Motherson, which manufactures wiring
harnesses for Hyundai India.
Effectively, the current listed entity (MSS) would be left with the global
businesses (100% of SMRPBV and PKC) and remaining India business,
including the JVs. The India Wiring Harness (DWH) business would be
focused on the India business, as desired by Sumitomo.
This entire restructuring is expected to be completed by 2QFY22, effective
from 1
st
Apr’21. This restructuring would require majority approval of the
minority shareholders.
The merger is expected to be EPS-accretive in FY22 itself.
Post the merger of SAMIL, the shareholding of the promoters would
increase to 68.15% from 61.73% currently, with the Sehgal family
controlling 50.4% and Sumitomo Wiring System owning 17.7%.
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Vipul Agrawal – Research Analyst
(Vipul.Agrawal@MotilalOswal.com) +91 22 7193 4322
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.