Understanding and Deep Analysis of the Demerged Business
In this article, we will talk about the newly listed wiring harness business of Motherson Sumi Limited– Motherson Sumi Wiring India Limited. So, let’s get started!
About Motherson Sumi Wiring India Limited:
- Motherson Sumi Wiring India (MSUMI) was created as a result of a restructuring exercise to align the interests of major stakeholders, including Sumitomo Wiring Systems.
- MSUMI, along with Samvardhana Motherson International (SAMIL), is the market leader in the domestic PV wiring harness segment with an estimated share of 60%+.
- MSUMI is a pure-play on the domestic wiring harness segment.
- MSUMI is having a Pan India presence with an industrial footprint close to customer locations.
- The Company is having strong customer relationships across OEMs with multiple awards from the customers.
- The company is having sustained leadership and competitive advantage in India with a high market share of around 40%.
- Further, the company is also having strong parentage and access to world-class technology.
- On 2nd July 2020, Motherson Sumi Systems Limited announced the separation of the Domestic Wiring Business from its main business.
- The appointed date of de-merger was 1st April 2021, which was approved by the shareholders on 29th April 2021.
- The decision got approval from National Company Law Tribunal (NCLT) on 23rd December 2021.
- The effective date of the scheme is 5th January 2022, and the record date for the demerger of the wiring business was 17th January 2022.
- Finally, on 28th March 2022, Motherson Sumi Wiring India Limited got listed on the stock exchange.
Higher Growth Than the Underlying Industry:
- Domestic Wiring Harness (DWH) business has increased at a CAGR rate of 13.7% between FY10 to FY21 while the growth of Passenger Vehicles volumes between the same period was just 2% showcasing the DWH business outperforming the industry.
- The company is having 23 Wiring harness plants across India with proximity to customer locations.
- The company has set up plants that are strategically located at multiple locations with the objective of de-risking.
How Wiring Business will be supported by Parent Companies:
1) Samvardhana Motherson International Limited (SAMIL):
- Sourcing of wires and components
- Sharing of common support functions
- Strategic guidance and direction
- Leasing of Land and Building
2) Sumitomo Wiring Systems (SWS):
- Sourcing of Components
- Technical Assistance
- World-class technology including gateways, body ECUs, Junction boxes, etc. along with solutions for hybrid/EVs.
How MSUMI can tap Industry Macro Trends:
- In terms of rising premiumization or customization, the company can tap the opportunity of increasing content per vehicle which can be solved by the wiring harness.
- Them for Alignment to User’s Digital Lifecycle- Connectivity, the company can add high-value SMART components where the company can serve harnesses components.
- Further for Sustainable Technologies (BS-VI/Safety Regulations), the company is having again the opportunity of increasing value per harness where the company can provide the solution of Electronics and EV solutions.
- Lastly for Alternate/Electric Powertrain, the company is having the opportunity in SWS leading global change where MSWIL is fully prepared and can provide high-voltage solutions harness and components.
- In Q3FY22, the wiring business earned a revenue of Rs. 1,460 Cr. which increased by 8.3% YoY from Rs. 1,348 Cr/ in Q3FY21. Sequentially, the revenue from the wiring segment got increased by 4.3% from Rs. 1,400 Cr. in Q2FY22.
- Earnings before Interest and Tax (EBIT) of the company for the quarter ended 31st December 2021 was Rs. 204 Cr. which increased by 7.4% YoY and 12.7% QoQ from Rs. 190 Cr. in Q3FY21 and Rs. 181 Cr. in Q2FY22.
- The EBIT margins stood at 14% contracting by 10 bps YoY and expanding by 110 bps QoQ.
Shareholding Pattern of MSUMI:
- Sumitomo Wiring Systems holds a 25.3% stake in the business, while SAMIL holds a 33.4% stake. The public shareholding is around 38.3% stake.
- The company is the market leader in the Indian Wiring Harness industry and has a 40% market share.
- The listed stock will be in the trade-for-trade segment for 10 days. This means that no intraday trading will be allowed for the stock. Hence, if someone buys the stock on March 28, then the person would compulsory have to take the delivery. The share was listed at the price of Rs. 66 on the Bombay Stock Exchange (BSE).
Quarterly Revenue and EBIT Trend:
- The revenue of the company has grown from Rs. 939 Cr. in Q3FY20 to Rs. 1,460 Cr. in Q3FY22.
- In the same period, the EBIT of the business has increased from Rs. 111 Cr. to Rs. 204 Cr.
- EBIT margins have been stable and are around 10%-15%.
What Should Investors Do?
The overall business of the wiring segment is quite good with a leading market share. The company also has good opportunities on the macro-economic front whereas MSUMI is already having good solutions to tap those opportunities.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.