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Scaling up – inorganically and profitably

Samvardhana Motherson International (SAMIL) has reached an agreement to acquire 100% equity stake in SAS Autosystemtechnik GmbH from Faurecia for an enterprise value of EUR540mn. SAS is a leading global provider of cockpit module assemblies for cars with manufacturing facilities/offices across 12 countries with a total headcount of ~5,000. For SAS, ~50% of its revenue comes from EV programmes and its largest customer is a leading global EV maker with other key customers being VW Group, Daimler and Stellantis. With net revenue of ~EUR900mn and EBITDA margin of ~11.5% in CY22, the said deal is valued at a trailing EV/EBITDA of ~5.4x. SAS will give SAMIL capability for cockpit module assembly, door panels, cooling modules, front-end modules, logistics-related services for just-in-time supply-chain management, etc. Our analysis suggests (assuming cost of debt at ~5%), post funding EUR540mn through fresh debt, SAS would deliver ~Rs2.5bn in terms of PAT for SAMIL in FY25E as against our existing FY25E PAT estimate of Rs34bn.Thus the deal will likely help SAMIL grow its earnings more profitably than the existing portfolio – other than giving exposure to key EV-making global OEMs and exposure to efficient logistical management in the automotive industry. Post the deal, we expect ‘net debt / equity’ for SAMIL at ~0.2x by FY25E vs being a net-debt-free entity otherwise. We retain our BUY rating on SAMIL with DCF-based price target of Rs110, implying ~20x FY25E earnings.

Our views on the deal:

* Scope to add to SAMIL’s revenue beyond reported figure; group’s diversified portfolio and backward integration capabilities to help generate higher revenues: For SAS, ~80% of the final product value is based on components sourced by OEMs at their discretion for final assembly to be done by SAS. Thus SAS’s net revenue reflects ~20% value-addition done by it, with the rest being sourced externally. Thus we believe SAMIL would target to supply plastic/electronic/mirror/camera based components to the target OEMs, worth ~20- 30% of ~EUR4.5bn gross revenue value, enhancing Motherson group’s revenue potential.

* Will help improve SAMIL’s relations with leading global EV makers; will also help it improve EV-based revenue mix: As against ~20% revenue mix for SAMIL with the VW group and ~15% with Daimler group, exposure to the leading EV OEMs is hardly 1%. The deal with SAS would take it up to ~3% and help SAMIL cross-sell its portfolio more efficiently, helping the latter to enhance its value addition per car through the same set of components, but with higher complexity. The deal, we believe, would also help SAMIL enhance its logistical practices – in turn saving on costs and adding new business opportunities.

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