Motherson Sumi Fall, What It Means For Investors and F & O Traders
Shares of Motherson Sumi Systems crashed 22 per cent in Friday’s session on the National Stock Exchange (NSE) ahead of the company’s record date for demerger of its wiring harness undertakings. Both the scrip and the demerged entities have been under pressure following worries about their profitability and ability to grow their respective businesses. The record date for the new scheme of arrangement has been fixed on January 17.
The new demerged entity would be known as Motherson Sumi Wiring India (MSWIL), while the existing Motherson Sumi Systems will be a part of the Samvardhana Motherson International (SAMIL).
What is Demerger?
In financial terms, demerger is the corporate restructuring in which a company’s operations are segregated into single or multiple entities. It can happen by a spin-off or by transferring the shares in a subsidiary holding.
What Should You Do With Motherson Sumi Share?
According to an ETIG report, the fair value of SAMIL has been Rs 170-230 per share, while that of the domestic wiring harness is around Rs 60-80 apiece. Motherson Sumi’s shareholders would get one share of each of the demerged and existing entities. Therefore, investors have to nothing to worry about.
The fundamentals of the wiring business is quite robust and the high voltage wiring harness from electric vehicles is growing at 16.9% CAGR during 2021-2028. So, it is well poised to capture the megatrend in the EV industry.
The brokerages seem to be upbeat about the growth prospects of both companies and it is going as per the restructuring plans of the company.
“This restructuring exercise is a step toward the company’s Vision 2025 – revenue target of $36bn with ROCE of 40%,” Emkay brokerage said in its report.
Therefore, you have nothing to worry about and keep holding the shares of the company.
What will happen to the F & O position of Motherson Sumi?
Those holding the F&O contracts, set to expire on January 27, February 24, and March 31, will be considered to be expired on January 13 only. Therefore, your profit/loss will be calculated based on MTM on the date at the time of market closure.