Emkay Global Financial's report on Motherson Sumi Systems
The restructuring exercise proposes to create a separate entity for the domestic wiring harness business (new company DWH), and a merger of parent entity SAMIL into MSS to bring in the remaining 49% SMR PBV stake and other auto/non-auto businesses. The proposed share swap implies a valuation of ~Rs244bn for SAMIL. The transaction would be EPS dilutive on our estimates, and to be EPS accretive by FY22E, a strong turnaround would be needed in SMR PBV and SAIML’s auto/non-auto businesses. The revised structure aligns interests of all stakeholders and creates a platform for future growth through both inorganic and organic routes. Reduced stake of Sumitomo Wiring Systems (SWS) in MSSL will allow to pursue acquisition opportunities more aggressively.
Outlook
A shift to this new platform is a step toward the company’s Vision 2025 – revenue target of USD33-35bn with ROCE of 40%. Retain Buy with a TP of Rs115, based on 20x FY22E EPS. We have EW stance in sector EAP.
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