Merger with SAMIL will enhance potential for global growth; TP up to Rs 120 from Rs 105
MSS, at the investor day, shared details of key businesses of promoter-entity SAMIL, which will be merged into MSS as part of ongoing restructuring. SAMIL has presence across lighting, metal solutions, IT solutions and engineering & tools; lighting formed 46% of Ebitda in FY20. MSS said that merging SAMIL into MSS would significantly expand MSS’s portfolio and provide large potential for global growth, especially inorganic. We retain Hold.
SAMIL, a diversified business profile: Excluding the contribution of stakes in MSS and jointly-owned overseas subsidiary SMRP, SAMIL generated revenues of Rs 28 bn and Ebitda of Rs 3.7 bn (13.2% margin) in FY20 — 4% and 7% respectively of MSS’s consolidated FY20 financials. Total capital invested in SAMIL’s businesses is ~Rs 28 bn (~$385mn).
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Lighting the biggest business for SAMIL: SAMIL has a 50-50 joint venture with Marelli for automotive lighting in India — Marelli Motherson Automotive Lighting (MMIL). MMIL formed 31% of its revenues and 46% of Ebitda in FY20. The ongoing shift from lamps to LEDs is providing a strong price tailwind to the business.
Metal solutions, IT solutions, and engineering & tools other key businesses: SAMIL has multiple subsidiaries and JVs for metal solutions such as shock absorbers, gas balancers, cutting tools, body-in-white, chassis, etc. The six entities in the metal solution business together contributed 32% of SAMIL’s revenues and 22% of its Ebitda in FY20. SAMIL’s IT subsidiary (MIND) formed ~15% and 7% of SAMIL’s FY20 revenues and Ebitda respectively. The engineering & tools subsidiary CTM contributed ~4% and 10% of SAMIL’s FY20 revenues and Ebitda. Most of these businesses have delivered double-digit CAGR over the last five years, albeit on a low base in some cases.
Growth potential from a wider portfolio: MSS announced a restructuring plan in July 2020 where it will first de-merge the domestic wiring harness business into a separate entity (DWH); DWH will eventually be listed. Subsequently, SAMIL will be merged into MSS via a share swap, and MSS will be renamed SAMIL. The stake of MSS’s current minority holders will stay at 38% in DWH but will fall to 27% in the new MSS, which will include SAMIL and 100% stake in SMRP. We retain a Hold rating with a revised PT of Rs120.