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Motherson Sumi demerger: What it means for the stock

14 Jan , 2022   By : Kanchan Joshi


Motherson Sumi demerger: What it means for the stock

Shares of Motherson Sumi Systems plummeted as much as 9% on the BSE and over 20% on the NSE in Friday's trading session as the stock started trading ex-domestic wiring harness (DWH) business ahead of the record date which is fixed on Monday January 17, 2021.


The auto parts maker will determine shareholders for allocation of additional shares of DWH business in the entitlement ratio of 1:1 on its record date. SAMIL will be the new name for existing listed entity after the de-merger of DWH business and merger with parent entity. The merger with the promoter entity is expected to take place on 24th January. MSWIL's listing is expected in mid-March, subject to regulatory approvals.


"At its analyst call, management re-emphasized expectations of better content per vehicle, helped by increasing EV penetration, in both the entities - DWH and SAMIL," highlighted Emkay in a note on January 10. It has a Buy rating on the stock with a target price of Rs300.


The brokerage expects robust growth prospects for the auto parts maker in the medium term, driven by expectations of a cyclical upturn in the underlying auto segment in domestic/global markets and increasing content per vehicle due to premiumization/electrification. 


“In addition, the proposed restructuring exercise creates a platform for future growth through inorganic and organic routes. This restructuring exercise is a step toward the company's Vision 2025 - revenue target of $36bn with ROCE of 40%," Emkay added.


Motherson Sumi's stock price has grown at around 13% compound annual growth rate (CAGR) from around Rs145 levels in January 2017, widely outperforming the Nifty Auto index. 


Brokerage house ICICI Securities retains Hold rating on the stock with separate fair value target prices of the demerged entity (DWH) as well as new SAMIL.


“We value the combined entity post-merger of erstwhile SAMIL into MSSL at Rs270 per share. Consequently, our target for individual entities i.e. DWH and new SAMIL (ex-DWH) is at Rs70 and Rs200, respectively," the broker's note on January 10 stated.


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