 "Motherson Sumi: Expanding reach")
The stock of Motherson Sumi was up two per cent on Tuesday, a day when Indian markets saw a sell-off, after the its subsidiary acquired assets of Germany-based Scherer & Trier for euro 36 million (Rs 286 crore). The acquisition, which does not entail taking on any liabilities, includes land and building, inventories and control of Mexican entities and will help the group consolidate its polymer business in Europe and in the US. The company's chief financial officer, G N Gauba, said the acquisition, which was complementary with its other plastic parts subsidiary SMP, should be earnings-accretive in the first year.
Scherer & Trier makes extrusion profiles, moulded parts of thermoplastics and hybrid components of metal and plastic at its plants in Germany and Mexico. The company has revenues of euro 240 million (Rs 1,900 crore) and was being run by an administrator largely with financing from customers. Daimler and Volkswagon are its biggest clients.
While the acquisition costs will be met from internal accruals, on the capital expenditure (capex) front, Sumi has indicated there is not much spending as of now and a large part of the capex will be in FY16, when its customers launch new product programmes. The company has a healthy order book at euro 8 billion for SMP and SMR to be executed over a five-year period and is looking to increase market share across product categories. It is looking to diversify its customer base with no single company contributing to more than 15 per cent of revenues. For the consolidated entity, Audi and Volkswagon are the largest customers with a share of 21-22 per cent.
While the India performance, especially on the operating profit level, was disappointing in the September quarter, analysts see it as a blip and expect performance to improve on a volume uptick. India operations are critical for the company as 65 per cent of earnings are due to the stand-alone operations. India contributes 16 per cent to revenues.
A recovery in the local market and an increase in capacities and expansion is expected to drive earnings growth. The stock is trading at 16 times its FY17 earnings estimates. Most analysts continue to have a buy rating.
Scherer & Trier makes extrusion profiles, moulded parts of thermoplastics and hybrid components of metal and plastic at its plants in Germany and Mexico. The company has revenues of euro 240 million (Rs 1,900 crore) and was being run by an administrator largely with financing from customers. Daimler and Volkswagon are its biggest clients.
While the acquisition costs will be met from internal accruals, on the capital expenditure (capex) front, Sumi has indicated there is not much spending as of now and a large part of the capex will be in FY16, when its customers launch new product programmes. The company has a healthy order book at euro 8 billion for SMP and SMR to be executed over a five-year period and is looking to increase market share across product categories. It is looking to diversify its customer base with no single company contributing to more than 15 per cent of revenues. For the consolidated entity, Audi and Volkswagon are the largest customers with a share of 21-22 per cent.
While the India performance, especially on the operating profit level, was disappointing in the September quarter, analysts see it as a blip and expect performance to improve on a volume uptick. India operations are critical for the company as 65 per cent of earnings are due to the stand-alone operations. India contributes 16 per cent to revenues.
A recovery in the local market and an increase in capacities and expansion is expected to drive earnings growth. The stock is trading at 16 times its FY17 earnings estimates. Most analysts continue to have a buy rating.