Reydel Buyout Will Help Motherson Sumi Diversify Customer Base, Say Brokerages

Motherson Sumi Systems Ltd.’s buyout of the privately held Reydel Automotive Group will help it diversify its customer base and markets, brokerages said.

Motherson Sumi bought Reydel Automotive, maker of interior components and modules for automobiles, for $201 million (about Rs 1,300 crore), the company said in an exchange filing yesterday. Reydel Automotive was owned by billionaire Steve Feinberg-led private equity firm Cerberus Capital Management.

Both the companies have a similar business and customer profile, the acquisition will be favourable if Motherson successfully taps into diversified geographies, Edelweiss Securities said in a note.

The deal will therefore be “capex saving” for Motherson Sumi and allow cross-selling, Laksh Sehgal, vice chairman of the Samvardhana Motherson Group, told BloombergQuint in an interview. Rydel has 20 plants across 16 countries, he said.

Also Read: Motherson To Buy Reydel From Private Equity Firm Cerberus For $201 Million

Here’s what the brokerages had to say:

Bank Of America Merrill Lynch

• Strengthens Samvardhana Motherson Group’s position within polymers
• Diversifies customer base further
• Provides more avenues for increased group in-sourcing and margin improvement
• Accelerate the company’s profitability improvement through synergies and insourcing
• Deal appears inexpensive at 2.2 times the enterprise value/Ebitda (on calendar 2017 financials) and is expected to be earnings per share accretive
• The company is one step closer to achieving their revenue goal of $18 billion by 2020.

Edelweiss Securities

• Deal is favourable as business and customer profiles of both parties are the same
• Acquisition provides Motherson Sumi access to a diverse set of capabilities (versus SMP) in similar line of products (cockpit modules, instrument & door panels, consoles, etc)
• Revised down the earnings per share for financial year 2020 by around four percent to Rs 15.3 to factor in lower growth across business.
• However, Edelweiss upgrades the stock to ‘Buy’ with revised target price of Rs 375 with a potential upside of 12.6 percent

Credit Suisse:

• Acquisition to be accretive from the first day itself
• Helps Motherson Sumi further diversify its customer base as as the two largest customers for Reydel (PSA and Renault group) were earlier smaller customers for them
• Deal appears to have generated significant returns for Cerberus who has sold out to Motherson.
• Increased the estimate of earnings per share for financial year 2020 by 4 percent and raised the target price to Rs 450 from Rs 440, maintaining an 'outperform' rating with a potential upside of 35.1 percent

Nomura:

• Reydel will add nearly 10 percent to Motherson Sumi’ revenues 3 percent to Ebitda for the new financial year
• Deal takes Motherson Sumi closer to management’s target of $18 billion in revenues by financial year 2020 —(the brokerage estimates $13.7 billion including Reydel).
• Future value accretion will depend on growth prospects and synergy benefits derived
• Given Motherson Sumi management’s acquisition track record, future prospects look promising