Buy Motherson Sumi; target of Rs 375: Edelweiss

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Edelweiss's research report on Motherson Sumi

Motherson Sumi (MSS), via its 51% owned subsidiary SMRPBV, has executed the transaction documents for the proposed acquisition of Reydel Automotive (Reydel; all cash deal). Prima facie, the deal is favorable as: (a) businesses & customer profiles of both companies are complementary. In fact, the acquisition will bolster MSS’ capabilities; (b) valuations at ~0.1x CY17E EV/sales & ~2x CY17E EV/EBIDT (~5-6x for SMRPBV) render it value accretive (similar to SMR in 2009) given RoCE of ~25%; and (c) capex needs of ~USD30mn indicates adequate FCF.

Outlook

We expect SMP to also follow this trajectory driven by revenue traction and lower capex. We estimate 28% FY18-20E EPS CAGR. Post the recent correction, we upgrade to ‘BUY’ from HOLD with TP of INR375 (India business 30x, SMR: 20x, SMP/PKC: 18x FY20E PER). At CMP, the stock trades at 21x FY20E PER.For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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