Motherson Sumi acquires French component maker Reydel, stock up 6%

Motherson Sumi gained as much as 6% in early morning deals after the auto component player acquired French component maker Reydel for $201 million.

At 10:00 am, the stock was trading at Rs 343, up 5.8%. The scrip opened at Rs 337 and had hit a high and low of Rs 343.8 and Rs 332 respectively in intra-day deals.

Reydel, a French company, clocked revenues of about $1 billion with an EBITDA of $68 million (provisional, and in accordance with US GAAP) for the year ended December 31, 2017. This acquisition will expand Motherson’s revenue by at least $1 billion, taking it closer to its stated target of $18 billion by FY2020. It has reported revenues of Rs 405 billion for the nine months ended December 31, 2017 ($6.2 billion approximately).

According to Edelweiss Research, "the deal is favorable, firstly, as businesses & customer profiles of both companies are complementary and the acquisition will bolster MSS’ capabilities. Secondly valuations at ~0.1x CY17E EV/sales & ~2x CY17E EV/EBIDT (~5-6x for SMRPBV) render it value accretive (similar to SMR in 2009) given RoCE of ~25%; and thirdly capex needs of $30 mn indicates adequate FCF. We upgrade the rating to ‘BUY’ post the recent stock price correction with revised target price of Rs 375."

The acquisition would enable both the companies to capitalise on new opportunities in their existing and new geographies, as well as within each other’s customer portfolios. The acquisition will be done by Motherson’s step down subsidiary Samvardhana Motherson Automotive Systems Group BV (SMRPBV) using its cash and banking limits. The acquisition will be closed over the next three-four months.

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