Samvardhana Motherson jumps nearly 9%, hits 52-week high; Nomura double-upgrades stock to BUY

Samvardhana Motherson share price: Shares of Samvardhana Motherson International jumped as much as 8.69 per cent to hit a 52-week high of Rs 92.50 apiece on the BSE in the early morning trade on Wednesday, a day after the company announced it would acquire an 81 per cent stake in the four-wheeler business of Yachiyo Industry, a Honda Motor subsidiary. The stock finally ended at Rs 90.32, up 6.13 per cent on the BSE.

The company has entered into a partnership with Honda Motor under which it will form an 81:19 strategic partnership with the latter, where both partners will drive the company towards a strong and sustainable future and be fully prepared for next-generation products and technologies, Samvardhana Motherson International Ltd. (SMIL) said in a statement.

Yachiyo Industry Co., Ltd. is a publicly listed firm on the Tokyo Stock Exchange. It is a subsidiary of Honda Motor Co Ltd. It has four-wheeler (4W) and two-wheeler (2W) businesses.

SAMVARDHANA MOTHERSON: Contours of the deal

"As a part of the overall transaction, the 2W business will be transferred to Honda Motor before Motherson acquires an 81 per cent stake in Yachiyo's 4W business," the statement said.

In a regulatory filing, the company said the cost of acquisition is at an "equity value of JPY 22.9 billion for a 100 per cent stake, subject to any adjustments about the above transaction." Yachiyo 4W supports Honda Motor in substantially all of its sunroof and fuel tank requirements at each manufacturing location, the statement said. "Sunroof systems have high growth potential globally due to an increase in demand and are expected to see a surge in application across all car segments," it said.

Further, the transition to hybrids will continue to see the use of plastic fuel tanks. The trend of fuel cell powertrains is also aligned with Type-IV hydrogen storage tanks under advanced stages of development, it added.

SAMVARDHANA MOTHERSON: WHAT BROKERAGES SAY

Reacting to the development, global brokerage firm Nomura has double-upgraded the stock to BUY from Neutral and raised the target price to Rs 105 from Rs 90 earlier. The brokerage notes that the acquisition is at an attractive valuation. 

Analysts at JM Financial, too, share similar views. In their words, "The acquisition comes at an attractive valuation c.1.7x trailing EV/EBITDA and 0.2x EV/sales. Transaction closure is expected by 1QFY25 and will be funded through internal accrual. We continue to maintain our positive stance on Samvardhana Motherson."

The brokerage added that easing the supply chain, sustained recovery in global auto sales, higher operating leverage and improving profitability are expected to drive return on capital employed (ROCE) going ahead. The brokerage has maintained a BUY rating on the stock, a target price of Rs 120.

ABOUT SAMVARDHANA MOTHERSON 

Samvardhana Motherson International Ltd (SAMIL) formerly known as Motherson Sumi Systems Limited, offers the design, development, manufacturing, and supply of wiring harnesses, rearview mirrors and interior and exterior modules to automotive industries. The company's product portfolio includes door panels, instrument panels, bumpers, centre consoles, decorative interior trims, assist system signal lights, blow moulded components, and high-precision plastic parts. Motherson Sumi Systems Limited has changed its name to Samvardhana Motherson International Limited and changed its trading symbol from MOTHERSUMI to MOTHERSON. The change is effective from June 2022.

SAMVARDHANA MOTHERSON SHARE PRICE HISTORY

The stock has rallied 20.5 per cent over the past 12 months. In comparison, the benchmark Nifty50 index has risen around 22 per cent, Trendlyne data show.