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SAS acquisition – Ticking the right boxes

SAMIL’s announcement of 100% acquisition of SAS Autosystemtechnik GmbH (SAS) at EV of EUR540mn (refer: press release, Company presentation) entails an all-round strategic fit providing entry into the new product segment (cockpit module assembly) with global leadership position (~20% share), meaningful acquisition size (~10% addition to consol. revenue), headroom for organic growth/synergy benefits through backward integration (~10% revenue upside on in-sourcing), significant EV exposure (~50% vs ~6% for SAMIL; meaningful exposure to leading US EV OEM which contributes 1/3rd of revenues), better margin/return-ratio profile, EPS accretive and reasonable valuation (5.2x CY22 EV/EBITDA; Faurecia acquired 100% stake at EUR450m in 2019). This would fast-track SAMIL’s efforts towards achieving its 2025 vision (refer our report).

We retain BUY on SAMIL, with SOTP-based TP of Rs101/share (Rs97 earlier), based on FY25 estimates. The increase in TP is led by change of 3%/6% on FY24E/25E EPS, on incorporation of SAS financials (on pro-forma basis).

SMRPBV (SAMIL’s wholly-owned subsidiary) is set to acquire 100% stake in SAS Autosystemtechnik GmbH (SAS) at EV of EUR540mn. SAS is a leading global provider of cockpit module assembly for the automotive industry, with expertise in Just-in-time/Just-in-sequence. Major modules entail console, cockpit and door panel, wherein SAS assembles the module by integrating sub-systems.

This is a major acquisition for SAMIL in five years and would support Company’s vision2025 target of achieving USD36bn revenue. The acquisition would increase customer proximity, improve competency in module assembly, see rise in content per vehicle (insourcing for existing products and open new growth areas in vehicle electronics for the future) and increase EV exposure.

SAS has market-share of ~20% in cockpit module assembly; it is the leading global provider of cockpit module assembly for the automotive industry. Major modules are console, cockpit, door panel, rear hatch, headliner, cooling module, front cradle and front-end module. Company has 24 manufacturing plants and 2 headquarters, with presence in 12 countries.

SAS’s CY22 net revenue stands at EUR896mn and EBITDA at EUR103mn (11.5% margin). Region-wise, revenue contribution includes 60% from Europe, 31% from Americas and 9% from China. Favourable exposure to the premium-vehicle segment, and EV programs constitute almost half of net revenue.

Gross revenue (including OEM-nominated, pass-through products) is EUR4.4bn. Of the outsource revenue, about ~20% comprises SAMIL’s existing products/capabilities (polymer modules, wiring harness, metal parts) and is an opportunity to in-source going ahead (as done with other acquisitions) on new product developments. Also, vehicle electronics (~50% of revenue) is an avenue for SAMIL’s future growth and diversification.

SAMIL has a strong order book with cumulative revenue visibility of ~EUR3bn for next 3 years. Management targets 40% ROCE for SAS, given the higher growth and profitability together with relatively asset-light nature of the business. The acquisition is expected to close by Q2FY24. We expect SAMIL’s net debt to increase post acquisition, from Rs84bn in Dec-22 to Rs98bn in FY24E (0.52x net debt/equity). We believe SAMIL will register a healthy operating cashflow of Rs63bn/year over FY23-25E, to support debt reduction going ahead.

SAS capex requirement is low as it mainly assembly operations and most of the capex is complete for current orders. Expect annual capex at EUR 30-45mn per year. Expect no major increase in working capital.

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