Motherson Sumi Systems - Focus remains on growth and cost efficiency - ICICI Securities

Samvardhana Motherson (SMRPBV) has entered into a partnership with the Plast Met group (Turkey) through its subsidiary SMR. Plat Met group consists of Plast Met Plastik, Bursa and Plast Met Kalip, Istanbul.

Key highlights of the partnership:

- SMR will acquire 75% stake and enter into a partnership with the founder of Plast Met. The deal includes two companies of Plast Met group, engaged in manufacturing of injection moulded parts, sub-assemblies for mirrors, trim modules and lighting systems.

- The base enterprise value (EV) of ~EUR21.8mn will be used to determine the equity value of the Plast Met companies and the final purchase price will be 75% of the equity value determined at closing. The two Plast Met companies reported combined revenue of EUR33mn/28mn in 2019/2020, respectively. As per the disclosures, the deal is expected to be EPS accretive.

- Plast Met has been a preferred automotive supplier in Turkey with more than 30 years of experience in the market. It produces injection moulded parts and sub-assemblies for mirrors, trim modules and lighting parts.

- Plast Met has a state-of-art tool room which produces injection moulding tools for global automotive customers for their plants in Turkey as well as plants located in other parts of the world.

- The acquisition will provide Motherson group access to Turkey market, become 42nd new country for MSS (aiding 3CX10). Turkey has an annual production of 1.4mn units, strong local market presence will act as an added advantage in scaling up its low-cost manufacturing.

- This location will not only act as a vital sourcing hub for SMR and aid further vertical integration but also reduce the turnaround time for design / development and delivery to its key European customers.

- SMR has not had an acquisition in the recent past and this will provide a diversification opportunity aligned with its core competencies and competitive capacity expansion opportunity for its growth in the Euro region. Few of SMR's key global competitors also have sourcing partnerships in Turkey.

- Maintain BUY: We believe this partnership provides SMR with a) new growth opportunity, b) more competitive cost dynamics, c) enhance value proposition for OEM's. We value MSS on SoTP basis and value India (Ex-DWH/DWH) at 23x/25x respectively while maintaining multiple for international subsidiaries at 14x Dec'22E EPS. We maintain our BUY rating on the stock with an unchanged target price of Rs187/share.

Shares of MOTHERSON SUMI SYSTEMS LTD. was last trading in BSE at Rs.159.5 as compared to the previous close of Rs. 156.95. The total number of shares traded during the day was 217538 in over 1951 trades.

The stock hit an intraday high of Rs. 160.3 and intraday low of 158.1. The net turnover during the day was Rs. 34633166.

Source : Equity Bulls

Keywords