Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Motherson Sumi Systems
S MFL 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 (see next page).
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
a 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
Issue details
SMFL has filed the DRHP with the SEBI for an IPO aggregating Rs17.5bn,
comprising a fresh shares issuance of Rs14.13 bn and cRs3.4bn of stake sale
by promoter group company, Radha Rani Holdings Pte. The draft prospectus
is available on the book running lead manager’s website.
SMFL is the promoter holding company having a 36.34% stake in listed
entity MSSL, a holding of 49% in SMR (MSSL holds 51% in SMR), and a
39.2% stake in Peguform (acquisition is under process and regulatory
approvals awaited, MSSL holds 40.8% in Peguform). Apart from these
stakes, SMFL has smaller businesses such as metal working and modules
such as automotive, lighting, heating, ventilation and air conditioning
systems and manufacturing support. These businesses are also partly
conducted through subsidiaries, JVs and other entities.
SMFL also has a large global presence, partly through SMR, trying to be an
end-to-end solution provider to the global OEMs. The DRHP indicated
SMFL’s plans to grow inorganically, broaden geographical footprint, expand
into emerging markets, expand customer penetration and explore high
growth product areas such as modules for off-highway vehicles, AC systems,
cold storage and refrigerated systems in cold chain transportation, cutting
tools for broad industrial applications, high end painting, engineering and
design, etc.
Pricing of issue, valuation and dilution are not indicated as it is a draft
prospectus.
According to the DRHP, issued share capital of SMFL is 473.61m shares of
face value of Rs10 each.
According to the DRHP, Radha Rani Holdings holds c14.1% of pre-issue
share capital or 66.78 m shares, and proposes to raise cRs3.4bn through the
stake sale.
As indicated in the DRHP, promoter group shareholding in SMFL is
~85.51% of the pre-issue share capital, 11.3% is held by Sojitz Corporation,
and the remaining 3.19% is held by the Samvardhana Employees Welfare
Trust/Individuals.
Objects of the issue as stated in the DRHP is Rs3.56bn for prepayment/
repayment of debt by the company/subsidiaries, Rs6.5bn for
strategic investments, Rs1.64bn for funding investments in the rear-view
vision systems, and the rest for general corporate purposes. Total capital
proposed to be raised through fresh share issuance is cRs14.13bn.
According to the DRHP, consolidated FY11 diluted EPS of SMFL was
Rs3/share and the last 3-year weighted average diluted EPS was Rs2.4/share.
Our initial view and potential impact on MSSL
Our initial analysis of SMFL revenues and net profits indicates that
significant contribution to SMFL comes from their 49% stake in SMR and
proportionate consolidation of their MSSL 36.34% stake. From the current
information available, we believe the other businesses could be on a much
smaller scale and at a nascent stage.
Our brief call with MSSL management indicates that proposed SMFL
capital-raising proceeds are likely to be used for de-levering of SMFL,
capital infusion potentially in SMR given the new plant start-ups and
Peguform (post completion of acquisition), future acquisitions and expanding
business into high growth areas (which may currently be in a nascent stage).
Hence, proposed SMFL capital raising could support the capex funding and
capital infusion at subsidiary level, positively impacting MSSL’s balance
sheet, in our view. This is because SMR and Peguform will be consolidated
as subsidiaries in MSSL’s balance sheet, as per management.
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. Kindly note that the DRHP does not
carry any issue pricing or valuation details but mentions the amount
proposed to be raised.
EBITDA margins and return ratios, as calculated by us from the reported
restated consolidated SMFL financial statements in the DRHP, seem lower
for SMFL. However, these businesses are in a nascent stage.
Management is quite confident on the future outlook for MSSL given the
scale-up potential of SMR (given that new plants will scale up in Hungary,
Brazil, Thailand, etc) and Peguform is under acquisition. Their exposure to
the stronger German car makers is positive.
Group structure continues to remain complex and this has been a concern
with investors.
While our current MSSL estimates do not incorporate the impact of
Peguform on MSSL, we believe that while line-by-line consolidation will
result in strong revenue growth for MSSL in FY12/13, it will also make the
leverage look higher (despite an effective 40.8% stake in Peguform).
Given management’s strong track record in expanding content per car and
market share, we have a Buy rating with an Rs280 price target. Key risks to
our view is a global recession and Europe macro risks, a sharp downgrade in
the 2012 auto sales outlook, difficulty in margin improvement at SMR and
Peguform (being acquired), and the outcome of any proposed group capitalraising
activity, which could impact investor sentiment on the MSSL stock.
Motherson Sumi Systems
Motherson Sumi Systems Limited (MSSL) is the flagship listed company of the
Samvardhana Motherson Group (SMG). It was established in 1986 as a joint
venture between SMG and Sumitomo Wiring Systems (Japan). MSSL is one of
the largest auto component companies in India by revenue and is evolving into a
leading global OEM supplier following the 2009 acquisition of Visiocorp
(renamed Samvardhana Motherson Reflectec). The company's key products are
mirrors, wire harnesses and polymer components.
Statement of Risk
Key risks to our view is global recession and Europe macro risks, sharp
downgrade in 2012 auto-sales outlook, difficulty in margin improvement at
SMR and Peguform (being acquired), and outcome of any proposed group
capital raising activity could impact investor sentiment on MSSL stock..
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Motherson Sumi Systems
S MFL 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 (see next page).
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
a 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
Issue details
SMFL has filed the DRHP with the SEBI for an IPO aggregating Rs17.5bn,
comprising a fresh shares issuance of Rs14.13 bn and cRs3.4bn of stake sale
by promoter group company, Radha Rani Holdings Pte. The draft prospectus
is available on the book running lead manager’s website.
SMFL is the promoter holding company having a 36.34% stake in listed
entity MSSL, a holding of 49% in SMR (MSSL holds 51% in SMR), and a
39.2% stake in Peguform (acquisition is under process and regulatory
approvals awaited, MSSL holds 40.8% in Peguform). Apart from these
stakes, SMFL has smaller businesses such as metal working and modules
such as automotive, lighting, heating, ventilation and air conditioning
systems and manufacturing support. These businesses are also partly
conducted through subsidiaries, JVs and other entities.
SMFL also has a large global presence, partly through SMR, trying to be an
end-to-end solution provider to the global OEMs. The DRHP indicated
SMFL’s plans to grow inorganically, broaden geographical footprint, expand
into emerging markets, expand customer penetration and explore high
growth product areas such as modules for off-highway vehicles, AC systems,
cold storage and refrigerated systems in cold chain transportation, cutting
tools for broad industrial applications, high end painting, engineering and
design, etc.
Pricing of issue, valuation and dilution are not indicated as it is a draft
prospectus.
According to the DRHP, issued share capital of SMFL is 473.61m shares of
face value of Rs10 each.
According to the DRHP, Radha Rani Holdings holds c14.1% of pre-issue
share capital or 66.78 m shares, and proposes to raise cRs3.4bn through the
stake sale.
As indicated in the DRHP, promoter group shareholding in SMFL is
~85.51% of the pre-issue share capital, 11.3% is held by Sojitz Corporation,
and the remaining 3.19% is held by the Samvardhana Employees Welfare
Trust/Individuals.
Objects of the issue as stated in the DRHP is Rs3.56bn for prepayment/
repayment of debt by the company/subsidiaries, Rs6.5bn for
strategic investments, Rs1.64bn for funding investments in the rear-view
vision systems, and the rest for general corporate purposes. Total capital
proposed to be raised through fresh share issuance is cRs14.13bn.
According to the DRHP, consolidated FY11 diluted EPS of SMFL was
Rs3/share and the last 3-year weighted average diluted EPS was Rs2.4/share.
Our initial view and potential impact on MSSL
Our initial analysis of SMFL revenues and net profits indicates that
significant contribution to SMFL comes from their 49% stake in SMR and
proportionate consolidation of their MSSL 36.34% stake. From the current
information available, we believe the other businesses could be on a much
smaller scale and at a nascent stage.
Our brief call with MSSL management indicates that proposed SMFL
capital-raising proceeds are likely to be used for de-levering of SMFL,
capital infusion potentially in SMR given the new plant start-ups and
Peguform (post completion of acquisition), future acquisitions and expanding
business into high growth areas (which may currently be in a nascent stage).
Hence, proposed SMFL capital raising could support the capex funding and
capital infusion at subsidiary level, positively impacting MSSL’s balance
sheet, in our view. This is because SMR and Peguform will be consolidated
as subsidiaries in MSSL’s balance sheet, as per management.
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. Kindly note that the DRHP does not
carry any issue pricing or valuation details but mentions the amount
proposed to be raised.
EBITDA margins and return ratios, as calculated by us from the reported
restated consolidated SMFL financial statements in the DRHP, seem lower
for SMFL. However, these businesses are in a nascent stage.
Management is quite confident on the future outlook for MSSL given the
scale-up potential of SMR (given that new plants will scale up in Hungary,
Brazil, Thailand, etc) and Peguform is under acquisition. Their exposure to
the stronger German car makers is positive.
Group structure continues to remain complex and this has been a concern
with investors.
While our current MSSL estimates do not incorporate the impact of
Peguform on MSSL, we believe that while line-by-line consolidation will
result in strong revenue growth for MSSL in FY12/13, it will also make the
leverage look higher (despite an effective 40.8% stake in Peguform).
Given management’s strong track record in expanding content per car and
market share, we have a Buy rating with an Rs280 price target. Key risks to
our view is a global recession and Europe macro risks, a sharp downgrade in
the 2012 auto sales outlook, difficulty in margin improvement at SMR and
Peguform (being acquired), and the outcome of any proposed group capitalraising
activity, which could impact investor sentiment on the MSSL stock.
Motherson Sumi Systems
Motherson Sumi Systems Limited (MSSL) is the flagship listed company of the
Samvardhana Motherson Group (SMG). It was established in 1986 as a joint
venture between SMG and Sumitomo Wiring Systems (Japan). MSSL is one of
the largest auto component companies in India by revenue and is evolving into a
leading global OEM supplier following the 2009 acquisition of Visiocorp
(renamed Samvardhana Motherson Reflectec). The company's key products are
mirrors, wire harnesses and polymer components.
Statement of Risk
Key risks to our view is global recession and Europe macro risks, sharp
downgrade in 2012 auto-sales outlook, difficulty in margin improvement at
SMR and Peguform (being acquired), and outcome of any proposed group
capital raising activity could impact investor sentiment on MSSL stock..
No comments:
Post a Comment