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UBS Investment Research
Motherson Sumi Systems
SMFL files draft IPO document
�� Event: SMFL files draft IPO prospectus with SEBI
Samvardhana Motherson Finance Ltd (SMFL) has filed a draft red herring
prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for an
IPO aggregating Rs17.5bn (new share issuance of Rs14.13 bn and Rs3.4bn stake
sale by promoter group company). SMFL has a 36.34% stake in Motherson Sumi
Systems (MSSL), 49% in Samvardhana Motherson Reflectec (SMR), and is
present in other businesses.
�� Impact: proposed capital raising in SMFL could support capex, lower debt
MSSL, which has businesses partly similar to SMFL, is currently trading at a
trailing PE of 17.3x FY11. SMFL consolidated restated net profit was Rs1.4bn in
2011, as per the DRHP. Capital raising in SMFL could support capex and lower
debt for its subsidiaries SMR and Peguform (acquisition under process). Group
structure continues to be complex due to cross-holdings and could impact investor
sentiment, in our view.
�� Action: good management track record, SMR/Peguform scale-up
We maintain our Buy rating with a price target of Rs280. Our positive stance is
premised on management track record, historical capital discipline, high return
ratios, and scale-up potential of SMR and Peguform. The MSSL stock is trading at
an FY12/13E PE of 14.3x/11.0x. Key risks are a global recession, Europe macro
risks, and the outcome of any proposed group capital-raising activity, which could
impact investor sentiment on the stock.
�� Valuation: maintain Buy rating with Rs280 price target
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a 12.0% WACC
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