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Motherson Sumi to pay €141.5mn to acquire 80% stake in Peguform
Motherson Sumi Systems (MSSL) along with group firm Samvardhana Motherson Finance
Ltd. (SMFL) has agreed to acquire 80% stake in Peguform GmbH and Peguform Iberica, SL
together with 50% stake in Wethje Entwicklungs GmbH and Wethje Carbon Composite
GmbH. The acquisition would be made through a joint venture company in which MSSL
would hold 51% stake and SMFL would hold 49% stake. The total share consideration for
the transaction is €141.5mn, of which MSSL would pay €72.2mn and the remaining would
be paid by SMFL. MSSL intends to fund its share of acquisition through overseas loan.
We believe the deal is attractively valued at ~5.1x and ~0.25x EV/EBITDA and EV/Sales,
respectively, on CY2010 basis. We expect the deal to be positive for the company in the
long run; however, low operating margins of Peguform Group (4.9% in CY2010 as
against 6.5% for SMR and 11% for consolidated operations) remain a near-term concern.
Currently, we are not incorporating Peguform’s acquisition into our financials as we await
more information on management’s strategy and turnaround plan. At `239, MSSL is
trading at rich valuations of 21x and 17.7x FY2012E and FY2013E earnings, respectively.
We recommend Neutral on the stock.
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