Samvardhana Motherson gets Street excited on two new acquisitions

Prysm is developing a new “Gen-3” prototype for mass production. Upon the delivery of the Gen-3 prototype, expected by the fourth quarter of FY24, a further investment of $20 million will be made.

The investment is to support the development of laser phosphorus displays (LPD) technology, which offers higher resolution and is more power efficient.

This will help Samvardhana Motherson in making an entry into new market segments aligned with diversification into non-automotive as outlined in Vision 2025 plan.

Furthermore, Samvardhana Motherson via its fully owned subsidiary of SMRP B.V. entered into an agreement to acquire an 81 percent stake in Yachiyo’s four-wheeler business. Motherson will form an 81:19 percent strategic partnership with Honda Motor.

Yachiyo is a publicly listed subsidiary of Honda Motor which comprises 4W and 2W businesses. As a part of the overall transaction, the two-wheeler business (housed under Goshi Giken) will be transferred to Honda Motor before Motherson acquires an 81 percent stake in Yachiyo’s four-wheeler business.

Samvardhana Motherson is trading 7 percent higher on NSE at 11:45 am on July 5.

Nomura has upgraded the stock to buy with Rs 105 as target price from Rs 90 earlier, while CLSA has a buy rating with target price of Rs 102. JP Morgan has an overweight rating with Rs 95 as target price.

Citi, though, has a sell rating with Rs 65 as target price and says "while acquisitions help in top line expansion, impact on returns is uncertain". The brokerage is also cautious the company's margins going forward.

Laksh Vaaman Sehgal, Vice Chairman & Director and Kunal Malani, CFO, Samvardhana Motherson International in an interaction with CNBC-TV18 said the acquisitions will be funded via debt as leveraging is not a concern. "Even after considering all the announced acquisitions that we have done till date,  we still anticipate the aggregate net debt to EBITDA to be less than two times." This is much below the threshold of the financial policy of 2.5 times.