Positive on growth, Motherson Sumi plans to set up 9 new plants


Fresh from a sturdy show in the quarter ended December 31, auto parts maker Motherson Sumi Systems

is bullish about its growth prospects in the coming quarters. Hailing the performance of its business verticals such as the SMP and SMR, Group Chairman Vivek Chaand Sehgal said the company’s India business and growth is back on track.

Motherson Sumi reported a 28.24 percent increase in consolidated net profit at Rs 547.32 crore in the third quarter against a consolidated net profit of Rs 426.77 crore in the year-ago period. Total income from operations during the quarter surged 12.4 percent at Rs 10,796.9 crore against Rs 9,598.35 crore in the year-ago period.

Sehgal said the firm recorded the highest-ever quarterly revenue and best-ever net profit, adding, the company looks to garner more from global units. For this, it plans to set up 9 new plants, of which 6 will be based globally, he said.

Last month, Motherson Sumi had made a USD 609 million offer to buy Finland’s PKC Group, a maker of wiring harnesses for trucks. Sehgal said the company will likely start seeing a positive effect of the acquisition in the first quarter of FY18.

The general growth trend in the SMP business is positive and the company is seeing growth in its North America business in SMR vertical, he said, dismissing concerns over Donald Trump-led US policies.

Below is the verbatim transcript of Vivek Chaand Sehgal’s interview to Sonia Shenoy & Anuj Singhal on CNBC-TV18.

Sonia: I wanted to start by asking you about the growth in the standalone business because that looks exemplary. Both revenues and EBITDA saw a very smart jump. Is there a significant recovery that you are witnessing here in the domestic market?

A: I think some new models have come in, some product mix has changed. But, again I would like to re-emphasise the board actually congratulated all the divisions including the wiring harness divisions for highest ever quarterly revenue and best ever quarterly net profit in the history of our company. So, it was a great moment of all of us in the board. Yes, India business has come back and this is what we keep saying that there are certain models that are going down and there are certain models coming up.

So, sometimes in quarters you will see as the new particular business is doing very well, the new car is doing very well that absolutely shows in our results as well. The bottom line I think, kudos to our team which have been focusing on return on capital employed (ROCE). They are trying to look at every single aspect of the business and how to improve the ROCE and hence the product mix changing and as well the ROCE importance is leading to such good results.

Anuj: What kind of incremental orders have you seen in overseas business and which geographies have seen improvement?

A: If you remember every six months we guide you on the order number, so last quarter we had guided you on the six months accumulation of new orders. This time we are giving you that new nine plants are coming up all over the world. Three of them are in India and six of them are outside India. So, you can understand that the growth outside India is also going to be pretty good depending upon when these plants come into fructification.

Sonia: Tell me a little bit about the recent PKC Group acquisition that you made and how that could add to your revenues over the next two to three quarters?

A: I think if all goes well and our open offer is accepted then by the end of this quarter we would have taken over that particular company. We wish to take over plus 90 percent shares which means the whole company has to, all the shareholders have to agree to our offer. Once that is done as per the finish stock rules, we can be owners of the company 100 percent. So, I think somewhere around in the first quarter next year which is say two months away you will start to see the effect of this particular acquisition, so we are very excited by.

We know that the size of this particular company is that of the size of Motherson Sumi’s wiring harness division, in fact bit higher. So, wiring harness is our backyard where we have learnt everything in life. So, we believe that it is a wonderful acquisition because both of us are going to learn from each other and really improve the profitability and the customer’s requirement of whatever they require.

Anuj: You have great knowledge about the growth in various geographies, can you tell us what is happening in the North American market because your recent acquisition also has an exposure there? Are things much better than what it was say two quarters ago?

A: One does see a growth coming up over there. In fact we see in our SMR business which is centred in USA. We also see it in the wiring harness side where we can see the green shoots coming. So, yes, America is one of the biggest consuming countries in the world, so definitely very excited to be there. What is really good for Motherson Sumi is we have a lot of plants in USA and whatever we are buying from Mexico is basically only the job working on the labour side that is how we acquired that particular company. So, we are not so concerned about whatever people are talking about between Mexico and USA. We believe that there will be status quo and our business will go fine for the time to come. We are very competent to handle whatever change in this particular thing happens. So, we don’t see any huge dips or anything like that in the future.

Sonia: I want to talk a little bit about the Samvardhana Motherson Peguform (SMP) business which is the erstwhile Peguform are you seeing any kind of cost related pressures there because this quarter the margins for SMP have come off sequentially. You did about 6.8 percent this quarter. It was 7.2 last quarter are there any one-time cost that have hit margins?

A: I think it is not a great idea to catch quarter number of SMP and then try to extrapolate that. Because, we are growing there are many one-time expenditure, there are certain things that could have come in this particular quarter but have been transferred to the next quarter because there is a lot of engineering or operational advantages and also non-operational advantages that we have in this particular company. So, I think the key point is the general trend in which this particular company is going. We are very glad about that.

I think you can see 11 percent revenues are up year-on-year and even the EBITDA is up year-on-year, so they have the Christmas holidays, they have the New Year holidays and all those particular things and they also take a kind of a toll. So, we look at the general trend and that is very encouraging, so I hope you understand that is the way to look at it.