Buy Samvardhana Motherson International Ltd for the Target Rs. 129 by Motilal Oswal Financial Services Ltd
New acquisition provides entry in PV wiring harness
* Acquisition of wiring harness business: MOTHERSO, via its material subsidiary Motherson Global Investments B.V. (MGI B.V.) and its step-down subsidiaries in various geographies, has entered into exclusive negotiations to potentially acquire 100% of the business, including assets and certain real estate, of Nexans AutoElectric GmbH and Elektrokontact GmbH and their shares in the foreign subsidiaries (AutoElectric). AutoElectric is a 60-year-old global manufacturer of automotive wiring harnesses for passenger vehicles and commercial vehicles with 22 facilities in 11 countries (Germany, US, Mexico, China, Tunisia, Ukraine, Romania, Slovakia, Czech Republic, Austria and Switzerland). CY24 revenue breakup: 81% from PVs and balance from CV; 74% from EU and North Africa, 24% from US and Mexico, and 2% from China. Major customers include BMW, Mercedes Benz, Daimler, and GM.
* The agreed-upon purchase consideration is EUR207m on a cash and debt free basis, with the actual payout to be determined based on closing adjustments. The deal is expected to close by 1QFY27, subject to satisfactory completion of all conditions, including regulatory approvals and consultations with the works council. In CY24, AutoElectric reported revenue of EUR749mn with EBITDA margins of ~6%. The deal is valued at 4.3x EV/EBITDA on CY24 financials.
*Synergies from the deal for MOTHERSO: a) combined development of next-gen products in PV and CV in a core business segment, b) cross-selling existing products to acquired customers, c) technical know-how on high degree of automation in engine harness business; and d) immediate access to premium car makers.
Our view
* After the demerger, this was the first acquisition by SAMIL into wiring harness business in the PV segment. It will open up a new growth opportunity for SAMIL in the coming years. This also gels well with its long-term target to diversify its revenue base (3CX10). The acquisition also provides the company with synergistic opportunities given the complementary product segments and customer base.
* Valuation and view:
We expect SAMIL to continue to outperform global automobile sales, fueled by rising premiumization and EV transition, a robust order backlog in autos and non-autos, and a successful integration of recent acquisitions. While the ongoing tariff issue may lead to a near-term slowdown in some of its key geographies, we expect SAMIL to be the least impacted by these tariffs as it has all its facilities close to its customers and can effectively realign supplies as per customer needs. Further, this is likely to lead to industry consolidation, with players like SAMIL likely to emerge as key beneficiaries in the long run. Given the long-term growth opportunities, we reiterate our BUY rating with a TP of INR129, based on 24x Sept’27E EPS.
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