SAMVARDHANA MOTHERSON FINANCE

Samvardhana Motherson Finance is entering the capital market on 2nd May, 2012, with a public issue of Rs.1,665 crores, by issue of equity shares of Rs.10 each, in the price band of Rs.113 to Rs.118 per share.  Of this, offer for sale is of Rs.321 crores by the promoters of the company and fresh issue is of Rs.1,344 crores. This implies an issue of 14.11 to 14.73 crore shares at the upper and lower price bands, respectively. Issue closes on 4th May 2012. 5% of the issue is reserved for shareholders of Motherson Sumi Systems, a listed JV company.

The company is a holding company or a JV partner in various companies, largely catering to the automotive industry across the globe. Present equity of the company is Rs.474 crores, which will rise to Rs.588 crores, considering issue is made at the upper band of Rs.118 per share. This implies a market capitalisation of about Rs.6,950 crores and enterprise value of Rs.7,100 crores, after adding debt of Rs.150 crores, with the company, as at 31-12-11. Book Value per share, on 31-12-11, stood at Rs.23.06, with net worth standing at Rs.1,092 crores on that date. Investments of the company, as at 31-12-11, stood at Rs.1,201 crores, at book value, which is the only assets in the books of the company, in addition to loans and advances of Rs.52 crores.

Of the total investments of Rs.1,201 crores, held by the company, an amount of Rs.966.67 crores, represents the value of 14.1 crore shares, being 36.12% stake, held by the company, in Motherson Sumi Systems Ltd., market value of which is close to Rs.2,500 crores, as on date. Balance investments of Rs.234 crores are in unquoted stocks and hence difficult to value. Company is holding stakes in 18 subsidiaries, 19 JVs and 84 subsidiaries/JVs/associates of Motherson Sumi Systems Limited, which is a JV, out of the 19 JVs, having invested in, by the company.

Now let’s have a look at the consolidated financial performance of the company, for the year ending 31st March, 2011, wherein total income was Rs.5,716 crores, with PAT of Rs.160 crores, resulting in an EPS of Rs.3.50. For 9 months ending 31st December, 2011, total income of the company, on consolidated basis, was Rs.6,025 crores, with net loss of Rs.111 crores.

Selling shareholder Radha Rani Holdings Pte. Ltd is having an equity of SGD 1 lakh with negative net worth of SGD 26 lakhs. This company will mobilise Rs.321 crores by selling part of its stake in the company, via the offer for sale.

It is an accepted rule in the market that investment companies are poorly discounted and are ruling at 25-50% of their NAVs, as they can’t get legitimately valued on earning method. Therefore, to value this company, at its best valuation, with discount of only 50% to its NAV, it must have a valuation of over Rs.14,000 crores, to justify its issue price of Rs.113 to Rs. 118 per share. Presently, this is not seen at over Rs.4,000 crores, even after giving a valuation of over Rs.1,500 crores, to its unquoted investments, in 18 subsidiaries and 18 JVs,(having book value of Rs.234 crores) after accounting for Rs. 2,500 crores for holding in Motherson Sumi Systems, which itself is being questioned, in view of thin trading pattern and absence from Futures & Options segment of the share of Motherson Sumi.

Also, huge equity base of Rs.588 crores, post IPO, will always be seen a big dampener by the market, as it will have dim prospects of dividend and bonus issues in the foreseeable future.

Considering all this, it can be said that issue is hugely and grossly overpriced, as issue is being made at around 175% of its current estimated NAV and at a PBV of over 4.5 times. Fair value of the stock is not seen more than Rs. 40 per share, considering the least discount of 40% on its estimated NAV.

Hence, better to avoid the issue and acquiring indirect stake in Motherson Sumi Systems, also is not comforting and prudent.