Motherson Sumi rating: Maintain ‘buy’ with target price of Rs 117

Our initial calculations indicate that the drop in MS’ profit share is ~7% for FY19.Our initial calculations indicate that the drop in MS’ profit share is ~7% for FY19.

Following its decision to demerge the domestic wiring harness (DWH) business, MSS has laid out a detailed plan thereof. Key highlights, valuations of various businesses are based on future earnings and derived differently (DCF, earnings-based, asset-based, etc). The management expects the arrangement to be EPS-accretive from first year itself. The deal takes effect on April 1, 2021, and management expects the demerger to take a year to fructify. DWH will have a mirror shareholding of MSS. However, minority shareholding (MS) interest in the new MSS (ex DWH) will drop from 38% to 27%, reflecting the assumption of a sharp turnaround at SMRPBV/SAMIL.

Our initial calculations indicate that the drop in MS’ profit share is ~7% for FY19 and ~24% in FY20 due to higher losses at SMRPBV. Based on our current SoTP assumptions, implied value ascribed to SAMIL is ~11% of current fair value. Unless there is a sharp turnaround at SMRPBV/SAMIL, implied valuation can lead to downside risk. After the de-merger, the DWH business will be listed. For at least a year, shareholding pattern of the business would remain as is.

Related News

Thereafter, both the partners (MSS and Sumitomo) have an option to modify their holdings. Excluding the profit from associates, SAMIL booked a PAT loss in FY20 due to impairment and interest cost. While the simplified business structure is welcome, our prima facie calculations indicate that management is assuming a sharp turnaround in current hotspots. In case that does fructify, valuation may face some downside. For the time being, we maintain ‘BUY’ with a target price of Rs 117.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.


Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *