Cummins Inc (global) acquires Meritor Inc, co-promoter of Automotive AxleAUTOAXLES - 2230 Change: 16.15 (0.73 %)
News: Automotive Axle is co-promoted by Meritor Inc. (global leader in axles especially for heavy trucks) and Kalyani group (Bharat Forge promoter’s) with each entity owning 35.5% stake in the company. At the parent level, Meritor Inc. has been acquired by Cummins Inc. valuing the former at US$3.5 billion (equity valued at ~48% premium to previous day’s closing price) i.e. ~11x EV/EBITDA, ~0.6x P/S and 11x P/E on trailing basis.
Views: Cummins acquired Meritor Inc. to primarily acquire e-axle capabilities developed by the latter, which finds application in electric heavy duty trucks. It intends to offer complete powertrain assembly solutions to its customers in the electric CV domain. Pertaining to Automotive Axles, the company has always guided that its parent has e-axle capabilities, which it can provide to domestic OEMs and has showcased the same to its clients in the past. This transaction will not meaningfully changed the business prospects at Automotive Axle but will eventually build expectations of Cummins Inc buying the Kalyani group stake in the company at a premium valuations in due course of time. We expect the stock to open positive on this news in opening trade today.