‘Top line is vanity, Bottom line is sanity, Cash in bank is reality’

How does the Samvardhana Motherson Group go about its business? Hear it straight from Vivek Chaand Sehgal



The Samvardhana Motherson Group, whose flagship company is Motherson Sumi Systems, manufactures components including wiring harness, rear view mirrors, modules and polymer products for the auto industry. The group follows an inorganic growth strategy and has presence in 33 countries across six continents currently. It counts many of the well-known global automobile brands among its customers. Excerpts from an interview with the Chairman, Vivek Chaand Sehgal:

What is your outlook for growth in the auto industry in the countries/continents in which you have presence?

There may be headwinds and tailwinds in different countries at different points in time. But the advantage for Motherson Sumi is that we are not really dependent on one particular country or one particular product or one customer. Globally, we have presence in 33 countries across six continents and count many of the well-known automobile brands across the world among our customers. Whether it is a US Fed Rate hike or Brexit, all these things do not impact car sales evenly across the world.

In the US and many countries in Europe, per capita usage of car is very high when compared to India or other developing countries. So, ultimately, if you got to change a car, you have to change it.

Globally, as a whole, I have not seen car production fall in the last 40-50 years. If one country is down, there are two or three countries that are up. So, when you are a global player, a slowdown in a few places doesn’t make that much of a difference.

As far as we are concerned, we see very strong traction across markets. Even in Brazil, where there was a bit of a slowdown, we are starting to see green shoots. By and large, OEMs (original equipment manufacturers) will match production numbers pretty closely to what they have originally shared with component makers like us.

Our order book across our business is quite strong. In our half-yearly results of 2016-17, we have declared orders of €11.9 billion for Samvardhana Motherson Automotive Systems, the subsidiary of Motherson Sumi that holds both rear view mirrors business and the modules business.

What changes in your product, client and geography mix can we expect as you move towards achieving your $18 billion revenue target at Motherson Sumi for 2019-20?

As at the end of 2015-16, Motherson Sumi’s consolidated revenues stood at $5.7 billion. Besides organic growth, given that we are a company which also embraces growth through acquisitions, inorganic growth is also a route to achieve this target of $18 billion by 2019-20. Our recent acquisition of Finland-based PKC Group, a supplier of wiring harness and associated components, adds about a billion to the top line. But at the same time, I would like to emphasise that the target is not $18 billion top line at any cost. This PKC acquisition will be EPS accretive from the beginning.

We have this philosophy at Motherson — ‘Top line is vanity; Bottom line is sanity; Cash in bank is reality.” If you take a closer look at our five-year plan towards 2020, it specifies a target of 40 per cent on return on capital employed (ROCE) alongside. So, only if we see a 40 per cent ROCE in a transaction will we go ahead with it. So there is a top line-bottom line connect.

As far as the product, client or geography mix is concerned, we have a very clear guidance. We have a target of what is called the ‘3CX15’ for 2020. That means no country, component or customer will account for more than 15 per cent of our turnover by 2020.

In the year 2000, revenues from the wiring harness division constituted 80 per cent of our turnover. For 2015-16, it was only about 16 per cent. The PKC acquisition may add a bit to the turnover from this division once again. In 2014-15, Audi brought in 21.5 per cent of our revenues and Volkswagen, 11.7 per cent. In 2015-16, this already came down to 19.6 per cent and 9.8 per cent respectively. So the mix is changing all the time. As mentioned, our target for 2020 is ‘3CX15’; may be in future, for 2025, it will be ‘3CX10’.

How have your in-house technical, research and design capabilities progressed over the years?

Our vision has always been to be a globally preferred solutions provider. When a customer asks us something, we have multiple sources to provide a solution — one, we check if can we do it by ourselves. We have a huge number of designers; we have seven tool rooms in the group; we have very capable engineering strength. So if we can, that would be great.

Two, if that’s not possible, we don’t hesitate to follow the customer to his supplier and taking a joint venture with them. We have, at this moment, over 30 joint ventures which are alive and doing very well. If that also doesn’t solve the problem, we don’t hesitate to acquire a company to acquire those skill sets and know how that are needed.

Yes, doing it by ourselves is our first preference but that is definitely a long-drawn process and it takes time. We have to judge whether we have or don’t have time and then move on to scout for joint venture or acquisition opportunities. So, while we have definitely progressed on our capabilities over the years, the call would depend on the need of the client and the timeline for execution.

The Indian auto component industry is identified as a highly fragmented one, where there are many single product companies, focused on very few clients or even a single client. On the other hand, there are players like Motherson Sumi. Is consolidation the way forward for the industry or is there still scope for small and marginal players?

Every company has to figure out, by itself, which way to go. It will be difficult for me to comment on the industry. We are probably the third or the fourth largest car-maker in the world and we will definitely become one of the largest manufacturing countries in the world. So one thing is sure for the component makers — the Indian automotive industry is here to stay.

I personally feel that the cost of learning in India is among the lowest in the world. So people have to open up. They have to understand the future of this industry. They have to be bold enough to go outside, bring further technology in, learn from their collaborators or set up alliances.

You tried to list Samvardhana Motherson Finance as the holding company for the entire group in 2012 and later withdrew the IPO. Are you reconsidering it?

At that point in time, a lot of investors told us that there are certain companies in the group which are not covered under the listed Motherson Sumi. So we thought we could give them a chance through the listing of Samvardhana Motherson Finance Limited.

But it so happened that during the time of the IPO, some announcements on GAAR (General Anti Avoidance Rules) spooked foreign investors at that point in time. So we had to take the IPO back, although we had roughly about 50 per cent subscription. Today, we don’t have a reason to bring it back. We are happy with one listed company.

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