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Samvardhana Motherson Finance Ltd IPO Review - 'Avoid' says Dilip Davda (Avoid)

   |   Review Posted On: Apr 26, 2012

Samvardhana Motherson Finance Ltd IPO Detail

The IPO that broke the ice for the fiscal 2012-13 got lukewarm response with around 1.15 times subscription (QIB-1.29, HNI-1.91 and Retail-0.68 times) which is attributed to low ebb of confidence across the band of investors and current market status. Most of the applications have come on the lower price band and thus, it is likely to fix Rs. 120 offer price.

Amidst such scenario, we have now mega IPO from Samvardhana Motherson Financial Ltd.  (SMFL) that is floating an IPO for Rs. 1665.00 crore that includes offer for sale from Radha Rani Holdings Pvt. Ltd for Rs. 321.00 crore and fresh issue of Rs. 1344.00 crore. The company is offering equity share of Rs. 10 each within a price band of Rs. 113 - 118 and the issue is opening on 02.05.12 and will close on 04.05.12. With this issue, company is diluting around 35% of post issue capital and the shares will be listed on BSE and NSE. J P Morgan India Pvt. Ltd and Standard Chartered Securities (India) Ltd. are the BRLMs and Link Intime India Pvt. Ltd. Is the registrar to the issue.  ICRA has assigned IPO Grade 4 to this IPO indicating "above average fundamentals" of the company.

Out of the fresh issue funds (Rs. 1344 crore) generated the company will use approx Rs.356 crore for repayment of high cost debts, Rs. 660 crore for strategic investment and Rs. 164 crore for setting up of rear view vision system plant and balance as general corporate needs.

Company Background

SMFL is a multinational business with manufacturing and design capabilities providing full system solutions to diverse industries. It provides an end-to-end range of design and manufacturing solutions to the automotive customers, including product concept and product design, engineering, manufacturing, sub-assembly and the production of integrated modules. The business portfolio includes wiring harnesses, rearview mirrors, molded plastic parts, injection molding tools, assemblies and modules, elastomer products, cutting tools and thin film coating metals, IT services, design engineering, cabins for off-highway vehicles, HVAC/ air conditioning systems for automobiles, lighting systems, air intake manifolds, air compressors, paint coating equipment, auxiliary equipment for injection molding machines and automotive manufacturing engineering services.

The major customers of the company include the five largest automotive OEM manufacturers in the world, as well as the largest automotive OEM manufacturer in India. It has 90 manufacturing facilities with a presence in 23 countries across the world, including 23 locations outside India and the company is in the process of establishing new manufacturing facilities in India, Brazil and Thailand.

Other Comments

On the performance front the company has shown an average EPS of Rs. 0.24 (on standalone basis) and Rs. 2.30 (on consolidated basis) for the past three years. For first nine months of the current fiscal EPS stands at Rs. 0.52 (on standalone basis) and -Rs. 2.50 (negative) (On consolidated basis). This will worsen on post issue equity with same earnings and thus IPO looks very expensive against ongoing prices for its peer group.

As far as past issue details of BRLMs is concerned and details given in RHP, JP Morgan came with five IPOs and Standard Chartered Securities came with 1 IPO and all of them gave some returns to the investors on debut day.

Conclusion / Investment Strategy

Although this offer is from a well known Motherson Sumi group that has remarkable performance for its listed venture Motherson Sumi Systems Ltd., this offer is being made at a greedy price.

Remark: High Risk-Low Yield.

IPO Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda (SEBI registered Research Analyst-Mumbai), a freelance journalist for more than 25 years, is a stock market analyst and news article writer. Since 1985, he has contributed to print media, electronic media and often appears on TV channels as visiting stock analyst. His articles are regularly publishes in Smart Investment (English and Gujarati weekly published from Ahmedabad), Free Press Journal and many other news papers & magazines. He is also a visiting stock analyst on DD News TV Channel.


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