Dalal Street Investments

Samvardhan​a Motherson Finance Ltd – SMFL Review + Recommendations

May 2, 2012

Samvardhan​a Motherson Finance Ltd – SMFL is open for Subscription from Today until May-4th. WE are AVOIDING the IPO even though their is a Grey Market Price of Rs 2400 for a Rs 2 Lakh Application. Here are the various Views of Research Analysts who have studied the IPO.

At the lower end of the band, on a trailing basis, without considering the impact of the upcoming dilution, SMFL would trade at a trailing PE of ~31x. After dilution it would trade at 39x and 41x its FY11 earnings for its lower and upper price band respectively.

Anand Rathi has the following View,

Its peer MSSL trades at 18.52x where SMFL has 36% holding. Though with a strong business and brand value and good growth over the years gives a positive outlook for the company, but considering on its valuations front it looks expensive. Investors can SUBSCRIBE WITH A LONGER TERM PERSPECTIVE

Aditya Birla Money’s Recommendations for Prospective investors of SMF IPO is as follows,

The net proceeds of the IPO would be used towards prepayment and repayment of debts and investments in subsidiary companies. The company is unlikely to see immediate benefits from such investments. Given (1) the adverse macro-economic environment SMFL is faced with – about 50% of revenues expected from Europe – (2) the high debt on its balance sheet (3) its current financial losses and (4) SMFL being a holding company, the IPO of SMFL, at the lower band of Rs113, is priced at a steep pre-IPO P/B valuation of ~3.7x. In the prevailing adverse equity market conditions, the market is unlikely to give such a high valuation to SMFL. Moreover, ~ 20% of the issue is an offer of sale by the existing promoters – a move not likely to be seen as positive by the market. We, thus, recommend an Avoid rating to SMFL IPO.

SMC Analysts have the following Recommendation

SMFL has established relationship with major global as well as domestic OEMs indicates bright future of the company. Rising per capita income and changing demographic distribution are conducive for growth. On the flip side the company two big overseas acquisitions on Europe and the US is likely to lower the demand for its products due to weak outlook of the economy. With the rise in energy price, higher interest rates and higher inflation, the automotive sector is likely to see moderate growth in India. An investor who has high risk appetite can opt for this issue.

SBI CAP Securities has the following Views,

SMFL is currently valued at 38.2x and 39.1x on EV/EBITDA multiple at lower and upper price band respectively whereas it is valued at 4.3x and 4.5x on P/BV multiple at lower and upper price band respectively. While comparing the company to its closest peers, the company seems to be overvalued on most of the valuation parameters. Given the complicated structure of the business, premium valuation and a concentrated customer base, the issue does not seems to be attractive. Hence we would recommend investors to AVOID the issue.

SPA Financial Advisers has the following Outlook of SMFL IPO,

Considering current valuations based on holding company valuation methodology, valuations seem expensive, however, on the back of turning around ability and to consistently outperform its own bold five-year targets, lends credibility to its long-term plans, we recommend investors to “SUBSCRIBE” to the issue with a long term perspective.

Sharekhan has the following Advise for IPO Investors of SMFL,

On the basis of SOTP valuation leaves no medium term room for gains for the conservative investor even as some high beta investors may be willing to take long term exposure through the IPO.

Angel broking Analyst Yaresh Kothari, in an in-depth analysis of SMFL IPO said,

Based on our SOTP methodology we arrive at a value of `97/share against the IPO price band of `113-`118. Management expects to turnaround the financial performances of SMR and SMPL over the medium term. However, we believe that it is early to factor in the anticipated turnaround in these two subsidiaries and valuations in our view are not providing sufficient margin of safety to investors considering the execution risks involved in the turnaround process. Hence we recommend Avoid on the issue.


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