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Motherson Sumi to trade ex-DWH from January 14, 2022

ICICI Securities 11 Jan 2022

What’s Buzzing:

Motherson Sumi (MSSL) has fixed January 17, 2022 as the record date for determining shareholders for allocation of additional shares of domestic wiring harness division (DWH; Motherson Sumi Wiring India) in the entitlement ratio of 1:1, i.e. one share of DWH for every share of MSSL. It is then expected to trade ex-DWH from January 14, 2022 (Friday) with DWH scheduled to listed separately by March 2022. Erstwhile SAMIL (49% of SMPBV+ other businesses) is set to be merged with MSSL on or before January 24, 2022 (post DWH de-merger) with the name of the new entity being changed to SAMIL.

Context:

MSSL had announced a mega-restructuring plan in July 2020. As part of the plan, in the first leg of transaction, MSSL would demerge the DWH business into a separate entity, mirroring the shareholding of the listed entity i.e. MSSL. In the second leg of transaction, MSSL would acquire all other lines of promoter’s business in auto ancillary & support functions including 49% stake in SMRP BV (SMR+ SMP) hosted in the erstwhile SAMIL. For the second leg of transaction, it plans to issue 136 crore new shares to promoters with Sehgal family’s stake increasing from 36.4% to 50.4% in the listed entity.

 Perspective:

The de-merger of DWH is being done at the behest of MSSL’s long time JV partner Sumitomo Wiring Systems of Japan to retain focus on India PV business (largely Japanese OEMs). It is a neutral event from the standpoint of minority shareholders. Post the second leg of transaction, we find comfort in all business being consolidated into one entity (MSSL+SAMIL-DWH) i.e. new SAMIL. The transaction appears to be fair and is not expected to adversely impact the interest of minority shareholders. From a fundamental perspective, MSSL is a global auto ancillary giant with revenues spread across wiring harnesses (30% of sales), vision systems (mirrors, 18%), plastic body parts (polymer & modules, 48%) and others. It primarily drives revenues from the PV (69% of sales) and CV (15% of sales) space and stays committed to its 2025 vision of US$ 36 billion sales, 40% RoCE and dividend payout. We advise investors to hold on to the stock with long term investment horizon. Given the high RoCE profile (~40%) and exposure to pure play domestic PV wiring harness segment at DWH, we expect it to command a valuation of ~ Rs 22,000 crore i.e. Rs 70/share. Expect the listed entity to trade ex this amount starting January 14, 2022 with fair value of new SAMIL pegged at ~Rs 90,000 crore i.e. ~Rs 200/share.

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