In Friday's trading session, shares of Motherson Sumi Systems fell as much as 9% on the Bombay Stock Exchange (BSE) and almost 20% on the National Stock Exchange (NSE) as the stock began trading ex-domestic wiring harness (DWH) business ahead of the record date, which is set for Monday, January 17, 2021. On the record date, the auto parts manufacturer will determine shareholders for the allocation of extra DWH company shares in a 1:1 entitlement ratio.
After the de-merger of DWH company and merger with parent corporation, the existing listed entity will be renamed Samvardhana Motherson International Limited (SAMIL). On the 24th of January, the promoter entity and the company will unite. The IPO of Motherson Sumi Wiring India MSWIL is scheduled in mid-March, pending regulatory approvals.
Why has stock price fallen?
It is to be noted that the wiring business of Motherson Sumi accounts for 17% of its total business before the de-merger. The 17% fall is a direct impact of the de-merger and the remaining 3% may be attributed to the panic selling by the investors. The de-merged amount of the stocks will be credited to the account of the shareholders once its wiring business is listed by mid-march.
What are brokerages expecting?
In a statement on 10th Jan Emkay said, "At its analyst call, management re-emphasized expectations of better content per vehicle, helped by increasing EV penetration, in both the entities - DWH and SAMIL." The stock has a Buy rating and a target price of $300. The brokerage forecasts the auto components maker to grow rapidly in the medium term, owing to expectations of a cyclical upturn in the underlying auto industry in domestic and foreign markets, as well as higher content per car due to premiumization and electrification.
It further went on to add, "In addition, the proposed restructuring exercise creates a platform for future growth through inorganic and organic routes. This restructuring exercise is a step toward the company's Vision 2025 - revenue target of $36bn with ROCE of 40%." Notably, Motherson Sumi's stock price has increased at a CAGR of nearly 13% since January 2017, well exceeding the Nifty Auto index.
