Motherson Sumi Wiring India to trade ex-bonus from November 16, 2022

What's Buzzing 

Motherson Sumi Wiring India (MSWIL) had announced bonus share issuance on September 30, 2022. The ratio was two bonus equity share of Re 1 each fully paid up for every five existing equity share of Re 1 each fully paid up (i.e. in the ratio of 2:5) held by the shareholders as on the record date (i.e. November 17, 2022). MSWIL turns ex-bonus today (November 16, 2022). 

Context 

On the ex-date today (November 16, 2022), the stock price will adjust for bonus ratio and is trading at ~Rs 60/share vs. yesterday’s closing price of ~Rs 83/share. 

Our Perspective 

A stock bonus issue is an investor friendly action. MSWIL is a leading, full-system wiring harness solutions provider in India catering to all major OEMs like Maruti Suzuki, Toyota Motors, Ashok Leyland, Tata Motors, etc and was listed on the Indian bourses on March 28, 2022. It was carved out of the erstwhile Motherson Sumi (MSSL) at the behest of its JV partner and for simplification of group structure. MSWIL's topline is contributed by 4-W, CV and 2-W in the ratio of 60%, 11% and 12%, respectively. The company has 23 plants all over the country with 40,000+ employees. MSWIL is a proxy to play upon the recovery in the domestic automobile space amid leadership position especially in the passenger vehicle domain. Further, with the upcoming electrification trend in the auto industry, the company is poised to benefit from an increase in content per vehicle to 1.5-2x from ICE. We build 18.1% net sales CAGR in FY22-25E riding on OEM ramp up, increase in electronic content in vehicles as well as increasing electrification. With operating leverage gains as well as a decline in key commodity prices, PAT growth in the aforesaid period is expected at 26.5% CAGR with consequent return ratios expected at ~50% by FY25E. It currently trades at 30x+ PE on forward earnings, which looks optically higher in absolute sense. However, it is inexpensive given the wider opportunity at play, its asset light business model and consequent superlative return ratio profile.