Samvardhana Motherson share price target at Rs 120? Analysts bullish on Yachiyo deal. Here's why

Samvardhana Motherson International Ltd or (SAMIL) saw its shares surging 8 per cent in Wednesday's trade as a few analysts believe the acquisition of 81 per cent stake in four-wheeler (4W) business of Tokyo-listed Yachiyo Industry Co -- which is engaged in production of automobile parts such as sunroofs, fuel tanks and resin products, will be value accretive from the first year itself.

The acceleration in M&A activity may expand customer, product and geography base, which would  augur well for Samvardhana Motherson International, they said while suggesting shares price targets up to Rs 120 level.  

Following the development, the stock rose 8.69 per cent to hit a high of Rs 92.50 on BSE.

The Japan-based company has deals in 4W and 2W businesses housed under Goshi Giken Co Ltd or Goshi and Honda Motor owns 50.4 per cent stake the company. The plan is that Honda Motor will first buy out the entire public stake via a tender offer and later Yachiyo’s 2W business (housed under Goshi) will get transferred to Honda Motor. After that, Samvardhana Motherson International will acquire 81 per cent equity in remaining Yachiyo 4W business, thereby forming an 81:19 Joint Venture with Honda Motor.

To be sure, Y4W has 9 per cent market share globally in Sunroof Systems and is a long-term strategic supplier to Honda Motor.

"We see this deal as a strategic positive for SAMIL’s long-term growth, as we believe it helps the company: penetrate deeper with Honda (cross-selling opportunities) and help foray into global Sunroof and Fuel Tank market," said JM Financial.

The acquisition, the brokerage said, comes at an attractive valuation 1.7 times trailing EV/Ebitda and 0.2 times EV/sales.

"We continue to maintain our positive stance on SAMIL. Easing supply chain, sustained recovery in global auto sales, higher operating leverage and improving profitability is expected to drive ROCE going ahead. We reiterate BUY with March 2024 target of Rs 120," JM Financial said.

The Transaction closure is expected by 1QFY25 and will be funded through internal accrual.

"The Yachiyo acquisition is very attractive 1.5 times equity/Ebitda, and hence it is expected to be EPS/RoCE accretive from the first year. More importantly, it adds two lines of business (sunroofs and fuel tanks), and makes Honda a sizeable customer for Motherson (6 per cent of consolidated revenues against 1 per  cent earlier)," Motilal Oswal Securities said.

Motilal Oswal said there are also two promising products in the works -- plastic tailgate and type-IV hydrogen fuel tank, which have the potential to futureproof the business. The domestic brokerage said that the Prysm acquisition is linked to a milestone, which, if achieved, can open up a large market in non-auto applications for Samvardhana Motherson International.

Yachiyo Industry's 4W segment reported turnover of 116.1 billion Japanese yen in FY23. Yachiyo's 4W business has a book value of 59.2 billion Japanese yen as on March 31.

Also read: Hot stocks on June 5, 2023: HPL Electric, Suzlon Energy, Brightcom Group, MRPL and more

The acquisition by Samvardhana Motherson International will be done via a wholly-owned subsidiary SMRP BV.

"The second big acquisition of Japanese firm by SAMIL at attractive valuation impress. Considering delisting process involved, the timeline to complete acquisition by 1QFY25 looks ambitious," said InCred Equities. This brokerage has a share price target of Rs 97 on the stock.

 

 

 

Also read: Suzlon Energy shares tank 5% amid huge turnover; stock snaps 7-day winning run on fundraising plan

Also read: YES Bank shares gain as lender reports 7.5% growth in Q1 advances