Motherson Group rejig plan fails to enthuse investors

Mumbai: Shares of Motherson Sumi Systems declined 5.3 per cent to Rs 98.10 as the proposed group restructuring exercise did not go down well with investors. As part of the rejig, the company will demerge its domestic wiring harness business, which will be listed separately.

The group has also decided to merge promoter entity Samvardhana Motherson International (SAMIL) and other joint ventures into Motherson Sumi. The merged entity will be renamed as Samvardhana Motherson International. The wiring harness business will be listed separately and will mirror the current shareholding of Motherson Sumi. The deal will take effect on April 1, 2021.

Some analysts said the swap ratio in the deal favours promoters and may not be in the interests of minority shareholders.

“Though the business restructuring took care of the much awaited demand of investors by putting whole of SMRPBV (Samvardhana Motherson Automotive Systems Group BV) in a listed entity, we believe the deal valuation was not in sync with present day subdued fundamentals,” said Ambit Capital’s Basudeb Banerjee and Karan Kokane in a client note, while putting their ratings under review. SMRPBV is a joint venture between Motherson Sumi Systems and Samvardhana Motherson International.

“Though we believe SMRPBV profitability is set to improve from 2HFY21 with gradual restoration in demand post Covid disruption, this deal valuation does not leave anything on the table for minority investors from a near-term perspective,” the analysts said.

The share-swap ratio is proposed at 51 share issues of Motherson Sumi for every 10 shares of Samvardhana Motherson International. After the restructuring, Motherson Sumi will hold 100 per cent in SMRPBV and the shareholding of the promoters would increase to 68.15 per cent from 61.73 per cent currently.

“Prima facie, the valuation approach by bankers looks more designed rather than independently achieved exercise given the trading multiple of respective competitor businesses in India and Europe,” said Priya Ranjan, analyst, Antique Stock Broking. “We believe the new business (ex-DWH) should start fetching lower valuation multiple in-line with global peers like Valeo and Faurecia.”

Nitij Mangal of Jefferies India said they need more clarity on domestic wiring harness (DWH) financials and interdependence on Motherson Sumi, along with SAMIL’s financials, to take an objective view on the transaction and the earnings impact.

Some analysts said the deal would be beneficial for the company in the long run.

“The merger of SAMIL into MSSL (Motherson Sumi) would create a strong listed entity with a diversified product portfolio and reinforce MSSL’s position as a leading, globally diversified, preferred component supplier,” said Jinesh Gandhi, analyst, Motilal Oswal Financial Services, in a note.