Motherson Sumi trades for ex-domestic wiring harness biz, stock falls 9%

MSSL has fixed January 17, 2022 as record date for determining shareholders for allocation of additional shares of DWH business in the entitlement ratio of 1:1.

Shares of Motherson Sumi Systems (MSSL) tumbled 9 per cent to Rs 182.30 on the BSE in Friday’s intra-day trade as the stock traded fex-domestic wiring harness (DWH) business starting today. At 11:46 am; the stock was down 7 per cent at Rs 186.55, as compared to 0.50 per cent decline in the S&P BSE Sensex. The trading volume at the counter jumped over five-fold times with a combined  25.8 million equity shares changing hands on the NSE and BSE.

MSSL has fixed January 17, 2022 as record date for determining shareholders for allocation of additional shares of domestic wiring harness division (DWH; Motherson Sumi Wiring India Ltd) in the entitlement ratio of 1:1 i.e. one share of DWH for every share of MSSL to all existing shareholders. DWH scheduled to be listed separately by March 2022.

Erstwhile SAMIL (49 per cent of SMPBV+ other businesses) set to be merged with MSSL on or before January 24, 2022 (post DWH de-merger) with name of new entity being changed to SAMIL (broadly: MSSL+100 per cent SMPBV-DWH).

MSSL said the demerger accomplishes the long-standing demand from the company’s joint venture partner, Sumitomo Wiring Systems Japan (SWS) to keep its participation focused on wiring harnesses business in India, which is its core area of business interest as well as the basis/ starting point of the joint venture established in 1986. This will help to enhance focus on the business and it will be better equipped to meet the current and future needs of wiring harnesses for the customers in the domestic market.

MSSL primarily serves global PV & CV industry with a history of successful turnarounds in acquisitions and inorganic-led growth. Post restructuring, new entity (SAMIL) revenue mix as of H1FY22 is: wiring harnesses: 30 per cent, vision systems (mirrors): 18 per cent, plastic body parts (polymer & modules): 48 per cent with rest at around 4 per cent also includes non-automotive sales. The company has a largely electric vehicle (EV) immune product profile.

Analyst at ICICI Securities said, we value the combined entity post-merger of erstwhile SAMIL into MSSL at Rs 270/share on SOTP basis. Consequently, our target for individual entities i.e. DWH and new SAMIL (ex-DWH) is at Rs 70/share and Rs 200/share, respectively. Given the high RoCE profile (~40 per cent) and exposure to pure play domestic PV wiring harness segment at DWH, we assign a premium valuation to it at 40x PE on FY23E vs. new SAMIL being valued at ~26x PE on FY23E, the brokerage firm had said in event update.