Motherson Sumi To Demerge Its Domestic Wiring Harness Business
Motherson Sumi Systems Ltd. on Friday said it would demerge its domestic wiring harness business into a new entity with similar shareholding which will be listed later.
The board of the auto components maker approved the reorganisation of business within the group, according to an exchange filing. The demerger is part of a long pending request of Sumitomo Wiring Systems, a joint venture partner and shareholder of Motherson Sumi with 25.10 percent stake, to focus on domestic wiring harness business in India—its core area of interest.
The new shareholding structure would give Motherson Sumi more freedom in buying assets where Sumitomo Wiring Systems competes, Binay Singh, analyst at Morgan Stanley, wrote in a report. The domestic wiring harness business, he said, is the company’s “best business” and could command a very high valuation multiple.
Singh, however, said the key is the share swap ratio which is not known.
A sub-committee, constituted to look into the valuations at which the businesses swap stakes, will come out with a definitive proposal within 90-120 days, the filing said. The reorganisation, once completed, will enable both the companies to fully participate in respective focused areas of growth, it said.
According to brokerage UBS Group AG, the domestic wiring harness business could see further re-rating given higher valuations of other India-focused auto component manufacturers like Bosch Ltd. and Wabco India Ltd.
The board also approved a proposal to consolidate shareholding in Samvardhana Motherson Automotive Systems Group BV. Motherson Sumi, which currently owns a 51 percent stake in the company, will buy the rest 49 percent stake from Samvardhana Motherson International Ltd.
Motherson Sumi shares have corrected 47 percent from its all-time high in December 2017, when the global auto slowdown began. Currently, 69 percent of the analysts tracking the stock recommend ‘Buy’. The Bloomberg consensus target indicates a potential return of 7.5 percent on the stock.