: ` per share. : ` Cr or $419.88mn (based on the cap price)

Transcription

1 I P O N O T E Samvardhana Motherson Finance Ltd. April 30, 2012 Price Band : ` per share Minimum Bid Lot Size : 50 Equity Shares IPO opens during : May 02 04, 2012 Book Running Lead Manager : Standard Chartered Securities (India) Ltd J P Morgan India Private Ltd To list on : BSE & NSE IPO Grading : 4/5 (ICRA) PE : 38.97x (based on base price)* : 40.69x (based on cap price)* Market Cap post-listing : ` Cr or $ mn (based on the cap price) Market Cap of Free Float : ` Cr or $419.88mn (based on the cap price) * Based on pre issue FY11 earnings IPO of mn equity shares of `10each, aggregating to ` Cr or $317.14mn (at the cap price). Shareholding Pattern Particulars Pre-Issue Post-Issue No. of Shares % Holding No. of Shares % Holding Promoters & Promoters Group 427,903, % 400,699, % OIBs excluding MF % % Mutual Funds % % Non Institutional % % Public & Others 45,710, % 95,096, % Total % 587,512, % Executive Summary Samvardahna Motherson Finance Ltd. (SMFL) was incorporated in December, The company and Motherson Consultancy Private Ltd. (MCPL) sanctioned the scheme of amalgamation in December, The MCPL Amalgamation Scheme provided for the transfer of all of the business and undertaking of MCPL into the company. SMFL since incorporation undertakes the provision of design and manufacturing solutions, mainly to the automotive industry, through subsidiaries and joint ventures with partners in the relevant fields. By virtue of being a holding company (in the case of subsidiaries) or a joint venture partner, the share capital of such subsidiaries and joint ventures is held by the company. SMFL operates its businesses through a number of subsidiaries, joint ventures and other consolidated entities. The principal businesses in the automotive sector are held through MSSL, SMR and the Peguform Group. The company is an integrated design and manufacturing group providing full system solutions to diverse industries. SMFL s principal focus is the automotive industry, globally and in India, and it is expanding the Keynote Capitals Institutional Research Page 1

2 expertise and skills acquired in the automotive business into other sectors where it anticipates significant future growth. Through a combination of organic growth and acquisitions, SMFL is now a multinational business with manufacturing and design capabilities as well as customers spread across multiple geographies. Within the automotive industry, it is one of the largest manufacturers of exterior rear view vision systems in the world. The company supplies its components to automotive original equipment manufacturers (OEMs) and other customers across the world. Its automotive OEM customers use the components primarily in passenger vehicles and commercial vehicles, which are sold in India and internationally. The manufacturing locations are generally located close to major automotive manufacturers in order to facilitate supplies to the customers, and has 120 manufacturing facilities, including 48 manufacturing facilities outside India, with a presence in 25 countries across the world. SMFL is also in the process of establishing new manufacturing facilities in India, Brazil, Mexico, Spain and Thailand. SMFL s major customers include the Volkswagen group, BMW, Daimler, Renault Nissan, Ford India Private Limited, Volvo Car Corporation, Maruti Suzuki, Tata Motors, Honda Siel Cars India Limited, Toyota Kirloskar Motor Private Limited and Fiat India Automobiles Limited. The 10 largest automotive OEM manufacturers in the world are SMFL s customers. Its five largest customers accounted for 59.3% of its consolidated income in the nine months interim period ended December 31, Its major nonautomotive customers include Hindustan Unilever Limited, Schneider Electric India Private Limited, GE Medical Systems India Ltd, Caterpillar India Ltd, and Ashok Leyland Limited. 3.7% of its consolidated income was contributed by its non-automotive products in the nine month interim period ended December 31, Our View The company s Total sales has grown from `686.10Mn in March 2007 to `57165Mn in March 2011, at a CAGR of 202% where as net profit has grown at a CAGR of 237%. For 9 month ending 31 st December, 2011, the company posted total sales of `60254Mn, with net loss of `1287Mn. At the issue-capped price, SMFL is valued at 40x March 2011 earnings, which is higher as compared to peers. Therefore, we advise the investors to Avoid the issue because of highly expensive at the IPO priced. Company Background Samvardahna Motherson Finance Ltd. (SMFL) was incorporated in December, The company and Motherson Consultancy Private Ltd. (MCPL) sanctioned the scheme of amalgamation in December, The MCPL Amalgamation Scheme provided for the transfer of all of the business and undertaking of MCPL into the company. SMFL since incorporation undertakes the provision of design and manufacturing solutions, mainly to the automotive industry, through subsidiaries and joint ventures with partners in the relevant fields. By virtue of being a holding company (in the case of subsidiaries) or a joint venture partner, the share capital of such subsidiaries and joint ventures is held by the company. The following are the subsidiaries of SMFL; Motherson Advanced Tooling Solutions Limited, Motherson Auto Engineering Service Limited, Motherson Auto Solutions Limited, Motherson Bergstrom HVAC Solutions Private Limited, Motherson Climate System Limited, Motherson Machinery and Automations Limited, Motherson Molds and Diecasting Limited, Motherson Zanotti Refrigeration System Limited, MothersonSumi Infotech and Designs Limited, MSID U.S. Inc., Nachi Motherson Tool Technology Limited, Saks Ancillaries Limited, Samvardhana Motherson Finance Services Cyprus Limited, Samvardhana Motherson Finance Services Inc., Samvardhana Motherson Holding (M) Private Limited, Samvardhana Motherson Virtual Analysis Limited, Tigers Connect Travel Systems and Solutions Limited and also Motherson Sintermetal Technology Limited. Promoters and Management Mr.Vivek Chaand Sehgal is the Executive Chairman of SMFL having over 36 years of experience in the auto industry. He is also the Chairman of the Motherson group and the Vice Chairman and Director of MSSL. He is instrumental in the overall functioning and operation of the Motherson group. Mr.Laksh Vaaman Sehgal is the Director of the company having over eight years of experience in the auto industry, being associated with the Motherson group. Keynote Capitals Institutional Research Page 2

3 Mr.Ashok Tandon is the Manager and CFO of SMFL. He carries the overall responsibility of day-today functioning of the company. He has over 36 years of experience in the industry. Industry Overview The automotive industry is one of the most important contributors to the global economy with global revenues estimated around 1.78 trillion in 2010 (Source: Frost & Sullivan Report). The demand for vehicles - cars and trucks - is considered to be an important indicator in gauging a nation s economic health. The automotive industry is mature, capital intensive and vertically integrated, thereby posing very high entry barriers to new entrants in both the vehicle and OE component manufacturing segments, especially in regions such as Europe, North America and Japan. However, the developing automotive industry in the BRIC (Brazil, Russia, India, China) nations is providing new opportunities for OEMs and suppliers to expand their global footprint. The top ten OEMs accounted for approximately 73.3% of the total Light Vehicles (LV) production in the world. (Source: Frost & Sullivan Report). Automotive industry profitability is highly dependent on external factors such as oil prices, commodity prices and interest rates. The heightened awareness of the environmental hazards of carbon dioxide (CO2) is having a significant impact on the global automotive industry. Production of greener vehicles and reduction of environmental pollution are top priorities for OEMs and regulators. Companies are seeking to achieve this largely through increasing the fuel efficiency of vehicles produced, improving engine technologies to reduce harmful gas emissions and using greener fuels. As a result, technology development and deployment is increasingly emerging as one of the key differentiators among the key vehicle and OE component manufacturers. Industry Definition and Segmentation The automotive industry is divided primarily into two major segments - light vehicles and heavy vehicles. Light vehicles consist of passenger cars, multi-purpose vehicles (MPVs), sport utility vehicles (SUVs) and sports cars as well as light commercial vehicles such as pick-up trucks, light trucks and vans. Heavy vehicles include trucks, buses, prime movers and special-purpose vehicles that are predominantly used for commercial applications. Among light vehicles, passenger cars are further divided into basic cars, small cars, mid-sized cars, large cars and large-plus cars based on their length. They are also divided into economy, non-premium, premium and super-premium cars depending on their price, brand positioning and level of trim/accessories. Industry Volumes and Trends Total global automotive LV production reached approximately 67.5 million units in Due to the global economic downturn, production volumes declined at an annual rate of 11.8% to reach approximately 59.5 million units in Following improved economic conditions and consumer sentiment, production volumes increased by 24.8% to 74.3 million units in Despite the overall declining market volumes during 2008 and 2009, the basic and small car segments cumulatively grew from approximately 15.8 million in 2008 to approximately 18.9 million in 2010 at an annual rate of 9.3%. (Source: Frost & Sullivan Report) The global production of LV is expected to grow at a CAGR of 7.6% between 2010 and 2013 to reach approximately 92.5 million units in Enhanced purchasing power in emerging economies, further introduction of environmentally friendly vehicles, new/upgraded model line-ups and pent-up demand are likely to drive this growth. All major regions are expected to witness an increase in the production of passenger vehicles - NA (7.8%), EU (4.2%) and APAC (9.0 %) (Source: Frost & Sullivan Report) Keynote Capitals Institutional Research Page 3

4 Source: Frost & Sullivan Report Volumes (mn) Global LV production is concentrated in three key regions North America (NA), Europe (EU), and Asia Pacific (APAC). These three regions cumulatively accounted for approximately 91.4% of overall LV production in (Source: Frost & Sullivan Report) Competitive Landscape and Key Market Participants The top ten OEMs had a combined LV production of approximately 54.4 million units in 2010, which represented approximately 73.3% of the overall global LV production. In 2008, their combined LV production was approximately 51.9 million units, which represented approximately 76.9% of the global LV production. By 2013, their cumulative production is expected to reach approximately 65.8 million units by growing at an annual rate of 6.5% from 2010 and is likely to represent 71.1% of global LV production volume. (Source: Frost & Sullivan Report). Some key data regarding these market participants are discussed below (mn) 2009 (mn) 2010 (mn) Projected 2011 (mn) OEM Rank Production Rank Production Rank Production Rank Production Toyota Volkswagen General Motors Renault-Nissan Hyundai + Kia Joint Ford Joint PSA Honda Suzuki Joint Fiat Joint Total Top 10 OEMs Source: Frost & Sullivan Report Key Emerging Trends and Outlook Key Emerging Trends: Frost & Sullivan believes some of the key trends impacting the global automotive industry are as outlined below. Keynote Capitals Institutional Research Page 4

5 Shift of Production Bases to Asia - Asia is uniquely positioned to become the new production base for the global automotive industry as it has large untapped automotive markets, a deep talent pool and low cost of production. Moreover, the local supplier base is also well developed and quality conscious. This makes it an ideal export hub and in addition enables it to serve the Asian domestic markets. Strategic Alliances and Partnerships - The formation of strategic alliances and partnerships is expected to be the most favoured mode for consolidation in the global automotive industry. The significant drivers for consolidation in the next few years are likely to be technology acquisition, establishment of a robust global Footprint and acquisition of brands that have high recognition and strong relationships with customers. Emergence of Low-cost and Electric Cars - The period is crucial for low-cost cars (LCCs) and electric vehicles (EVs). Highly commended models in both these categories entered the market in The full scale commercial launch of the Tata Nano has created a new market for passenger cars at lower price points also witnessed the launch of the Nissan Leaf, the first all-electric city car and the Chevrolet Volt, GM s plug-in hybrid electric vehicle. While production volumes of LCCs have reached moderate levels, remarkable production volumes of EVs however are expected only after Green Imperative - There is a high level of awareness about the environmental hazards of automotive emissions. Governments in Europe and the United States are drafting and implementing regulations that mandate lowering of harmful emissions. OEMs are focused on developing new technologies and/or making significant improvements to existing vehicles in order to increase fuel efficiency and lower emissions. They are working collaboratively with OE automotive component manufacturing companies to achieve this goal. Zero-accident / Smart Cars - Light vehicles are being considered and developed as living spaces rather than merely transport. Most global OEMs are aiming to develop cars that promise zero emissions and zero accidents. Their efforts are directed towards equipping the vehicle with a wide variety of sensors, driver assistance systems and control mechanisms that help to avoid accidents/crashes. Overview of the Indian Automotive Industry- The automotive sector is one of the core industries of the Indian economy. The de-licensing of the sector in 1991 and the subsequent opening up of the sector to foreign direct investment levels of up to 100% and the permission of such investment under the automatic route were significant for the Indian automotive industry. Since the institution of these reforms, almost all the global major automotive players have set up facilities in India. The Government of India, through the Ministry of Heavy Industries and Public Enterprises, has implemented the Automotive Mission Plan , a 10-year plan aimed to sustain and accelerate the growth of the Indian automotive sector. This plan intends to double the contribution of the automotive sector to Indian GDP by increasing the sector s output to US$ 1.45 billion in The plan aims to achieve this output by emphasizing the export of small cars, multi-utility vehicles, two- and three-wheelers and automotive components. The plan projects that the size of the automotive industry will reach between US$ 122 billion and US$ 159 billion by 2016, including US$ 35 billion in exports. This translates into a 10%-11% contribution to Indian GDP in 2016s. (Source: Automotive Mission Plan ) There has been an increase in the production of commercial vehicles from 520,000 units in to 752,597 units and of cars from 1,544,850 units to 2,986,797 units in Certain details of the increase in production volumes in the automotive sector from to are set forth below: Year CVs Two-wheelers Three- wheelers Tractors Cars & MUVs ,000 8,436, , ,078 1,544, ,823 8,009, , ,792 1,767, ,970 8,369, , ,011 1,825, ,004 10,510, , ,888 2,335, ,597 13,376, , ,769 2,986,797 (Source: CRISIL Research, SIAM, August 2011) Keynote Capitals Institutional Research Page 5

6 Business Operations The company businesses and products cover multiple areas of the automotive value chain as well as several non-automotive rear view vision systems; wiring harnesses; polymer processing, including assemblies and bumpers, cockpit assemblies and door trims, and tool manufacturing; elastomer processing; modules, such as automotive lighting products and heating, ventilation and air-conditioning systems; metal working, including cutting tools, broaches, bimetal band-saw blades and gear cutting tools and thin film coating metals; cabins for off-highway construction and agricultural vehicles; refrigeration systems; manufacturing support, including air compressors, paint coating equipment and auxiliary equipment for injection molding machines; and IT and design engineering for the automotive and non-automotive sectors. The company major customers include the Volkswagen group, BMW, Daimler, Renault Nissan, Ford India Private Limited, Volvo Car Corporation, Maruti Suzuki, Tata Motors, Honda Siel Cars India Limited, Toyota Kirloskar Motor Private Limited and Fiat India Automobiles Limited. It provides an end-to-end range of design and manufacturing solutions to automotive customers, including product concept and product design, engineering, prototyping and tool manufacturing, manufacturing and subassembly and the production of integrated modules. Strengths Global customer base and strong relationships with major automotive OEMs: The Company has long-standing relationships with most of their customers, which include many of the major global automotive OEMs. The strength of the relationships with these customers is due to consistent performance over time and the emphasis that the company place on catering to their customers needs, coupled with access to technology. They carry out most of their critical manufacturing processes in-house, which allows them to monitor the quality of the manufactured products throughout the production process. Achieving synergies through horizontal and vertical integration: The Company has presence across various levels of the automotive component value chain, providing products and services that range from product design and prototyping to tool manufacturing, assembly and the production of integrated modules. The wiring harnesses business produces all the major components required in-house, ranging from wires to connectors. These synergies extend across various businesses, enhancing ability to become an integrated full-system solutions provider and reduces dependence on third party suppliers for a number of products and services, enabling the company to streamline the production process and achieve shorter delivery and development lead times resulting in just-in-time production capabilities. Market leadership position in exterior rear view vision systems: The company is one of the largest manufacturers of exterior rear view vision systems in the world. In 2010, the company had a 22.0% share of the global exterior rear view vision systems market based on sales volumes, rising to 25.0% when light Keynote Capitals Institutional Research Page 6

7 commercial vehicles are excluded, making the second-largest global manufacturer in this segment. (Source: Frost & Sullivan Report). The company was the leading player in the European exterior rear view vision systems market with a market share of approximately 34.0% in 2010, and enjoyed a leading position in the North America and Asia-Pacific regions with a market share of approximately 25.0% and 17.0%, respectively, in In 2010, it had 57.0% of the market for exterior rear view vision systems in India. (Source: Frost & Sullivan Report). Long term partnerships and collaborations with global technology leaders, facilitating access to cutting-edge technology: The company has entered into joint ventures and partnerships with several multinational companies, including Sumitomo Wiring Systems Limited, Nachi Fujikoshi Corporation, Magneti Marelli Holding S.P.A., Calsonic Kansei Corporation, Woco Franz Josef Holding GmbH and Woco Industrietechnik GmbH, Kyungshin Industrial Corporation Limited, Spheros GmbH, F Holding GmbH, Austria, Zanotti S.P.A., Bergstrom Inc., U.S.A., Sojitz Corporation, Anest Iwata Corporation, Japan, Matsui Manufacturing Company Limited, Japan and Nissin Electric Company Limited, Japan. They are the industry and technology leaders in their respective markets, and their technological capabilities and global reach and presence provide the company with significant advantages and benefits across the businesses. Objects of the Issue The objects of the issue are: Funding pre-payment and repayment of debt facilities availed by the Company and certain Subsidiaries. Funding strategic investments in Samvardhana Motherson Polymers Limited, Joint Venture and Samvardhana Motherson Holding (M) Private Limited, the Subsidiary. Funding investments in the rear-view vision systems business. Utilization of net proceeds Particulars Amounts `Cr Funding pre-payment and repayment of debt facilities availed by the Company and certain of the Subsidiaries Funding strategic investments in Samvardhana Motherson Polymers Limited, Joint Venture, and Samvardhana Motherson Holding (M) Private Limited, the Subsidiary Funding investments in the rear-view vision systems business General corporate purposes Total estimated Offer expenses Investment Risks (Please refer to the RHP for a complete listing of risk factors) The severe recessionary impact of the global financial crisis and the effects of the ongoing sovereign debt crisis and uncertainty in global financial markets continue to be a cause of concern despite concerted efforts to contain the adverse impact of these events on global economic recovery. The general economic conditions in India and around the world have substantially affected the Indian and global automotive industry. The demand for automobiles in the global market is influenced by factors that include, among others, changes in government policies, economic conditions, demographic trends, consumer confidence, employment levels, fuel prices, interest rates and taxation, Historically, the automotive industry has had a limited number of major global OEMs and this has led to a substantial percentage of company s sales being made to a small number of customers. The loss of a major customer, if not replaced, would adversely affect the company, as would factors such as automobile recalls that could have the effect of slowing customers sales. Reduction in any of customers sales may lead to decreased production by such customers, resulting in lower demand for company s products. [ ] Keynote Capitals Institutional Research Page 7

8 The company depends significantly on Joint Ventures to conduct business and the performance of Joint Ventures may affects performance of the company. Operating a business as a joint venture often requires additional organizational formalities as well as time-consuming procedures for sharing information and making decisions. A significant portion of company s debt is denominated in currencies other than Indian Rupees, and the majority of debt bears interest at floating rates. The company do not typically use any hedging instruments in relation to the interest rates based on Bank PLR or Base Rate on Indian currency loans. As a result, an increase or decrease in interest rates would affect current interest expenses and future refinancing costs, which could have a material adverse effect on the business Restated Profit & Loss Statements (` Mn) Particulars FY 08 FY09 FY10 FY11 9M FY12 Total Income 5, , , , , % Growth % 81.91% % 12.95% 5.39% EXPENDITURE Material Consumed 2, , , , , Employee Cost , , , , Other Expenditure 1, , , , , Total Expenditure 4, , , , , EBITDA , , , , EBITDA Margins (%) 14.23% 14.74% 7.46% 8.81% 4.38% Depreciation & Amortization , , , Interest and Finance Charges (net) , PBT , , Total Tax , NPAT before restatement adjustments , , NPAT Margins 5.82% 7.26% 1.47% 2.93% -2.14% Adjustments NPAT, restated , , NPAT Margins 6.04% 6.17% 1.50% 3.36% -2.54% ROE % 5.40% 8.46% 6.39% 12.10% - EPS PE at base price PE at capped price Source: RHP Keynote Capitals Institutional Research Page 8

9 Restated Balance Sheets (` Mn) Particulars FY08 FY09 FY10 FY11 9MFY12 Gross Block 6, , , , , Less: Accumulated Depreciation , , , , Net Block 5, , , , , Less: Revaluation Reserve Net Block after adjustment 5, , , , , Capital Work in Progress , , , Total (A) 5, , , , , Investments (B) , Current Assets, Loans and Advances Inventories , , , , Sundry Debtors , , , , Cash and Bank Balances , , , , Loans and advances , , , , Total 2, , , , , Deferred Tax Assets (D) Liabilities & Provisions Secured Loans , , , , Unsecured Loans , , , Liabilities 1, , , , , Provisions , , , , Deferred Tax Liability , Total (E) 2, , , , , Minority Interest (F) , , , , Net Worth (A+B+C+D-E-F) 5, , , , , Net Worth Represented By: Share Capital (G) 3, , , , , Share Application Money (H) , Reserves and Surplus 2, , , , , Less: Revaluation Reserve Reserves and Surplus (I) 2, , , , , Less : Miscellaneous Exp. (J) Net Worth (G+H+I-J) 5, , , , , Source: RHP Keynote Capitals Institutional Research Page 9

10 Keynote Capitals Ltd. Member Stock Exchange, Mumbai (INB ) National Stock Exchange of India Ltd. (INB ) Over the Counter Exchange of India Ltd. (INB ) Central Depository Services Ltd. (IN-DP-CDSL ) Registered Office 4th Floor, Balmer Lawrie Building, 5, J. N. Heredia Marg, Ballard Estate, Mumbai Tel Nos / 24 / 25 Disclaimer This report by Keynote Capitals Ltd. is purely for information purpose and is based on the Red Herring Prospectus for the public issue of the company under coverage, published financial statements, public information and the recent analyst meeting of the company. Neither the information nor any opinion expressed in this report constitutes an offer, or an invitation to make an offer, to buy or sell the securities mentioned herein. Directors, officers, clients or employees of Keynote Capitals or its affiliates may have positions in securities covered in this report or in related investments. Keynote Capitals Ltd may also have proprietary trading positions in securities covered in this report or in related investments. Opinions and estimates mentioned herein, if any, are based on workings of Keynote Capitals only. Investors in the issue are advised to read the RHP carefully before subscribing to the issue. Keynote Capitals Ltd. or any of its directors, officers or employees shall not in any way be responsible for any loss arising from the use of this report. Investors are advised to apply their own judgment before acting on the contents of this report. Keynote Capitals Institutional Research Page 10