$609-mn PKC deal will help Motherson Sumi reach $18 bn revenue target

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The country’s biggest auto component maker has taken a significant step forward towards realising its $18 billion revenue target by 2020.

The car parts maker and engineering group has made a 571 million-euro ($609 million) offer to buy Finland’s Group, which makes wiring harnesses for trucks,

has grown its revenue ($5.7 billion in FY16) through overseas acquisitions. The latest one also happens to be one of the top acquisitions by any Indian automobile company.

Group clocks an annual revenue of Rs 6,100 crore (approx). The 30-year-old company, led by Vivek Chaand Sehgal, will now get a much wider presence in large markets like America and Europe in its business. Motherson will make an open offer to shareholders.

 

Interestingly, Sehgal’s company was set up to manufacture wiring harnesses for Maruti. G N Gauba, chief financial officer at Motherson, said, “Wiring business is close to our heart.” The company gets around 14-15% of its revenue from this segment. The roughly doubles the contribution from this segment. A is a set of wires, terminals and connectors running through a vehicle to connect several parts. “North America is one of the markets where we are looking for growth,” Gauba added.

The will help Motherson offer a larger product portfolio, enhance its capabilities and scale, and will add more value to its customers and suppliers.

 

Nasdaq- and Helsinki Stock Exchange-listed owns production plants in US, Brazil, China, Russia and Germany among others and has an employee strength of 22,000. At Nasdaq, the stock zoomed over 49% to 23.30 Euros following the announcement and its market cap rose to $562 million.

 

Motherson said it believes it can help in achieving its expansion opportunities given its strong market position in the Asia Pacific region. The company wants to exploit the Asian transportation market where leading global commercial vehicle manufacturers are looking to expand sales. This will also help Motherson in growing the commercial vehicle segment revenues.

 

Gauba said Motherson raised Rs 1,993 crore through a qualified institutional placement in September 2016. “We also have internal cash accruals. I do not see a need for new debt,” he said. The company’s consolidated debt was Rs 2,175 crore as of September 2016.

 

As a strategy, Motherson aims to de-risk its portfolio and is consciously working on a policy where no single customer/country or component will constitute more than 15% of its revenue by 2020. Gauba said the company will continue to grow its business and that will bring the reliability on any single customer down even though the actual contribution may continue to grow.

 

German company Daimler, manufacturers of Mercedes Benz luxury cars, has quickly moved to become the second biggest global customer of Motherson from the sixth slot just a year ago. In doing so, Daimler has overtaken the likes of Volkswagen and Ford and now brings over one-tenth of the revenue for Motherson. German luxury car maker, Audi, remains the largest contributor to the revenue for last few years, accounting for about one-fifth of sales. Contribution of Volkswagen brand has come down consistently. From 20% in FY13, it is now less than eight per cent.

 

Only 14% of Motherson’s revenue comes from Indian operations. In the last ten years, revenues have expanded at a CAGR of 40%. A large part of this growth has been inorganic and overseas. Peguform, a German company (polymer-based interior and exterior products for light vehicles) acquired by Motherson in 2011, now brings about 70% of the company’s revenue. Going forward, the Indian market’s contribution will continue to shrink. The company is keen to make more acquisitions overseas. “We will continue to look for opportunities where we can add value,” says Gauba.