Samvardhana Motherson's SAS acquisition reasonably priced: Analysts

They say it will add 10-15% to firm's revenue and Ebitda, allow product and geographical diversification

Shares of automotive (auto) component maker Samvardhana Motherson International (SAMIL) were up nearly 6 per cent at Rs 84.2 on the BSE in Monday’s intraday trade, before closing 3 per cent higher at Rs 81.9.

The gains, even as leading indices fell half a per cent, are after the company announced on Sunday night the acquisition of a 100 per cent stake of SAS Autosystemtechnik GmbH (SAS) at an enterprise value (EV) of €540 million (Rs 4,800 crore). The transaction will be funded by a mix of debt and internal accruals.

SAMIL further said the object of the acquisition, made through Samvardhana Motherson Automotive Systems Group BV Netherlands (a step-down subsidiary), was enhanced integration in the auto supply chain, thereby increasing customer proximity, product diversification across customers, products, and geography with increased exposure to electric vehicle (EV) programmes.

The company is well positioned to capitalise on emerging trends of outsourcing module assembly by original equipment manufacturers (OEMs) and has strong experience and competency in assembly operations, automation, and managing complex logistics, it said.

Brokerages, too, believe that the transaction multiple of EV/earnings before interest, tax, depreciation, and amortisation (Ebitda) seems reasonable and inexpensive, and the acquisition will add value to the company. 

SAS is a decent-sized acquisition and can, prima facie, add about 10-15 per cent to SAMIL’s revenues and Ebitda. The transaction’s EV of €540 million implies 5.3x calendar year 2022 (CY22) EV/Ebitda. This is a tad higher than the current trading multiples of European auto component companies, such as Faurecia and Plastic Omnium, which are between 4.0x and 4.7x CY22 EV/Ebitda, and 3.6x and 4.4x CY23E EV/Ebitda on consensus estimates; however, the deal valuation still appears reasonable taking into account some control premium, said analysts at Jefferies.

“SAMIL is trading at 11x and 8.3x 2022-23 and 2023-24 EV/Ebitda on our estimates, although its Indian business gets a higher multiple in our view,” said the brokerage firm.

SAS is a leading global provider of assembly and logistics services for the auto industry. SAS had revenue of €896 million (Rs 7,950 crore) with Ebitda at €102.7 million (Rs 910 crore; margins at 11.5 per cent) in CY22.

With its strong capabilities in assembly, automation and logistics, “SAS is well positioned to benefit from the secular trend of outsourcing module assembly by OEMs to trusted suppliers,” SAMIL said in an exchange filing.

Other brokerages appear to share a similar view on the deal.
 

ICICI Securities said the implied valuation of the acquisition is pegged at 5.2x EV/Ebitda, which is inexpensive. This is a sizeable acquisition (about 12 per cent of SAMIL’s existing top line) by the company after a long time and is to be funded through a mix of internal accruals and debt.

SAS works in the domain of assembly of consoles, cockpits, door panels, etc. Also, around 50 per cent of sales from EV programmes with one of the top EV OEMs are now becoming a client of SAMIL. The acquisition also offers to cross-sell SAMIL’s offerings and total system solutions to the client at SAS. The acquisition falls under the company’s broader Vision 2025 targeting group revenues at $36 billion, ICICI Securities said in a note.

According to Motilal Oswal Financial Services, for SAMIL, the acquisition will add cockpit module assembly business and contribute 8 per cent to revenue (versus 0.3 per cent before this acquisition). It will also get access to a new leading American EV OEM, which contributes 32 per cent to SAS’ total revenue.

The brokerage said SAS has orders in hand of over €3 billion (Rs 26,500 crore) for the next three years. EV programmes account for almost half of the total net revenue. The company has 24 facilities across 12 countries and has a presence across the European Union (60 per cent of revenue), Americas (31 per cent), and China (9 per cent), the brokerage said.

About 20 per cent of the gross order value of SAS offers an opportunity for SAMIL, with existing product capabilities like polymer modules and components, wiring harnesses and metal components, said analysts.

Since Sunday, three of the six brokerages polled by Bloomberg have a ‘buy’ rating, while two others have a ‘hold’ recommendation and one a ‘sell’. Their average one-year target price is Rs 86, indicating potential gains of 5 per cent from current levels.