Motherson Sumi tanks 21% as stock trades ex-wiring harness operations. What lies ahead for investors?

ICICI direct has assigned a premium valuation of 40 times 2022-23 earnings to the wiring harness business owing to the business' high return on capital employed and exposure to the pure-play passenger vehicle wiring harness market.

Shares of Motherson Sumi Systems ended 21 percent lower at Rs 185.50 on the NSE on Friday as they traded exclusive of the value of the wiring harness business of the company that will be demerged into a separate listed entity.

Last year, Motherson Sumi had announced a restructuring of its business under which the promoter entity will be merged into the existing listed company and will be called Samvardhana Motherson, while the wiring harness business will be demerged.

Earlier in the month, the company said that the cut-off date for deciding eligible shareholders for the issue of shares of the demerged entity will be January 17. Post-January 17, the company will issue one share of the domestic wiring harness business in lieu of one share of Motherson Sumi Systems.

On January 24, the merger of Motherson Sumi's promoter entity and Samvardhana Motherson International into the listed entity Motherson Sumi will be completed with the new entity to be named Samvardhana Motherson.

Analysts expect the domestic wiring harness business to list on the bourses in March. Brokerage firm ICICI Direct has valued the domestic wiring harness business at Rs 70 per share, which is likely to be its listing price.

ICICI direct has assigned a premium valuation of 40 times 2022-23 earnings to the wiring harness business owing to the business' high return on capital employed and exposure to the pure-play passenger vehicle wiring harness market.

"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 $36billion with ROCE of 40%," said brokerage firm Emkay Global Financial Services.

Dealers suggested that investors should not be worried about the sharp drop in Motherson Sumi's share price today as they are more than likely to recover the loss when the wiring harness business is listed.

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