Edelweiss is bullish on Motherson Sumi has recommended buy rating on the stock with a target price of Rs 375 in its research report dated April 2, 2018.
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
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