Motherson Sumi Systems Ltd recently announced the record date to decide shareholders receiving additional shares of the entity from which the business is going to emerge from itself. The date for the same is 17th Jan 2022. The ratio for allotment of the shares is 1:1, i.e. every 1 shareholder of MSSL will receive one share of soon to be demerged entity. Let us see how the corporate restructuring will take place.
Motherson Sumi Systems Ltd
The company is one of the leading automotive component suppliers in the globe. The company is primarily involved in the manufacturing and sale of auto components such as automotive vision systems, polymer parts, metal machining, a wiring harness system, tooling, and elastomers. The business previously had a single product i.e. wiring harness and has expanded to polymer products, vision systems and machined metal components.
The business structure
The business is the flagship company of Motherson Group and is owned by Samvardhana Motherson International Limited (SAMIL) which has 33.4% shareholding, Sumitomo Wiring Systems from Japan has 25.3% shareholding and the Sehgal Family has 3.0% shareholding.
SMRP BV has 2 stakeholders, 49% with SAMIL and 51% on MSSL. SAMIL has 3 stake holders currently, which are the Sehgal Family, Sojitz and the employees of the companies. MSSL currently has 4 stakeholders. SWS (Sumitomo Wiring Systems), SAMIL, Sehgal Family and the public shareholding as the company is listed.
The business structure after reorganization
In the first step MSSL will be demerging its Domestic Wiring Harness into a separate entity which will be known as Motherson Sumi India Wiring Ltd. This entity will be listed. The shareholders of MSSL as on date 17th Jan 2022 will receive 1 share of Motherson Sumi India Wiring Ltd for every 1 share of MSSL they hold. Motherson Sumi India Wiring Ltd will have the same shareholders in the same pattern which MSSL currently has. The wiring harness business hence will receive increased focus from Sumitomo Wiring Systems and will cater to the automotive market. It will also bring new solutions for electric vehicles.
Key points of this step:
- Demerger of wiring harness business (Motherson Sumi India Wiring Ltd) into new listed company.
- The share entitlement ratio is 1:1 which means for every 1 share of MSSL shareholder will get 1 share of wiring harness business.
In the second step MSSL will merge with SAMIL. This merger will result into complete ownership of the international business (SMRPBV) for MSSL because MSSL and SAMIL hold 51% and 49% shareholding respectively in SMRPBV currently. This will result into diversified revenue and increase in product mix for the new entity. After this merger, MSSL will be known as SAMIL (Samvardhana Motherson International Limited).
Key points of this step:
- Merger of SAMIL into MSSL
- Share entitlement ratio is 51:10 which means for every 51 shares of MSSL shareholder will get 10 shares of SAMIL.
The New entities
Motherson Sumi India Wiring Ltd
This company will completely focus on wiring harness business. The company will also get access to advanced technology solutions as Sumitomo Wiring Systems will have a majority stake in the business. The business will also benefit from the rising content per car.
The domestic wiring harness business has increased its revenue with a rate of 13.7% CAGR as compared to growth of 2% CAGR in the passenger vehicle volumes from FY10 to FY21. The company has 23 wiring harness plants across India. The company also claims that the plants have a close proximity to its customer locations giving it a upper hand in customer retention.
The latest ROCE of the business for H1FY22 is 44%. The decreased in numbers during FY21 and H1FY22 is due to impact on productions due to COVID-19 shutdowns. Also due to pass through of higher commodity prices the profitability was impacted. The wiring harness business had a revenue share of 30% in the main business and EBITDA share of 33% during H1FY22.
Samvardhana Motherson International Limited
The product portfolio of the company is well diversified. The company has presented vision 2025 in which it aims 75% of revenue from automotive industry and 25% from its new divisions. The company will also be giving out 40% of consolidated profit as dividend.
In H1FY22, the majority of the contribution for SAMIL came from Polymer & Modules segment which was about 48%. Wiring harness business contributed 30% to the company. The non-automotive business currently is in a nascent stage and hence a low contribution of 0.3%.
Passenger vehicles have contributed the most in SAMIL’s H1FY22 revenue with 69%. Commercial vehicles contributed 15% to the revenue while in others (off road vehicles, non-automotive segments and rolling stock) Top 20 customers of SAMIL contributed 73% of the total revenue in H1FY22.
Timeline of the restructuring
The record date for the MSWIL (Motherson Sumi Wiring India Ltd) demerger is 17th Jan 2022. Merger will be effective from 24th Jan 2022. The MSWIL shares will be listed in Mar 2022.