Q. This is the first time you missed your five-year plan? What went wrong, and what are the learnings from the past five year plans?
VCS: We were almost inline till January-February this year. We got the bad news of China getting into trouble, and that gave us a sign that things were going to go wrong globally. Motherson had the advantage of seeing the pandemic roll out globally, and we were pre-warned. We then decided to step back and not to make the acquisitions that were planned. At that time, they were on the verge of finalisation. But we decided to be prudent and to let the whole thing to pass. Now it is an added advantage for us that the entire asset is going to be cheaper, although they have more debt.
It would have been problematic for us if we had acquired those companies just at the start of the pandemic and then had to struggle for the next six months.
LVS: A lot more of those opportunities have come back. Many private equities etc., want to exit now as they see some signs of recovery. We have even more opportunities than we had before. We believe that we will close them and not only hit our previous target but also double up from there.
A large chunk of USD36 billion will come from inorganic opportunitiesLaksh Vaaman Sehgal – vice-chairman, Motherson Sumi
Q. For the next few months how many acquisitions are planned?
VCS: I think from January-February next year many companies will be available. The customers have already told us to be ready. From our side, we are putting great effort, and definitely, we would see deals around the corner if everything works out well. We are actively working with the target companies.
Q. Can you shed some light on the nature of companies that you want to close first? What will be the impact on your top line?
LVS: We are bound by a non-disclosure agreement. But the important thing is a large chunk of the USD 36 billion will come from inorganic opportunities. They will add tremendously to our bottom line and top line. The acquisitions will be a mixture of small, medium and large-size companies. Our focus is on customer requirements, and for that, we look at the quality of the companies and not their size.
Q. You mentioned that there would be a cost advantage as the valuations of the companies have come down post-pandemic. Now how easy it is for you to re-negotiate with those companies?
VCS: It’s not really re-negotiation. The company’s value has deteriorated because of the aid that they have got. That makes the value differential very obvious. At the end of the day, we are solving the customers’ issues so the deal has to be fair and there should be a win-win situation for all the parties.
If the condition of the company has deteriorated, the fair price will get reduced to that extent. It entirely depends on the performance of the company and whom we are going to deal with.
Q. You mentioned USD 36 billion, which is almost 4X of growth from the current revenue. What kind of investment are you looking at to reach this target?
VCS: It is essential to understand that there is a restructuring going on between Motherson Sumi and SAMIL, which will get completed in the next 2-3 months. As that plays out, it will open much more vistas to raise funds.
Our debt has now come down dramatically, and from the last 20 quarters, our debts are the lowest now. And we also have cash of INR 3,000 crore.
LVS: In the last five-year plan, we set up 41 new greenfield and brownfield plants. All of them have stabilised, and I believe they should throw up much cash for further acquisitions. Our rating is very strong. We have raised bonds at record levels for our company. So, it is a very good situation for us because all the greenfield projects and acquisitions that we have made in the last five years are now going to give good returns and the company will be able to use that capital to go after new deals. And where we need to take debt or dilute our equity, we are completely open and flexible.
Q. Annually you were investing a certain amount? Is that going to change as you are going to target such a huge revenue?
VC: We have around INR 3,000 crore in different countries and at different places lying around. We are a ROS company where the return on capital employed is very important. So the more cash we are sitting on, the worse our ROS becomes. That’s a reason we are trying to say, that depends on opportunity. The new assets that we are willing to put money in are interesting because today most of the countries have negative interest rates. There are innovative classes of financing which are available which the company will use in future.
Electric doesn’t hold any specific place in our upcoming five year plan.Vivek Chaand Sehgal – chairman, Motherson Sumi
Q. Some reports suggest that you will list another entity from the group. Is it correct?
VCS: We have only two entities – one is a domestic wire harness company, and the second is the new SAMIL. Other than these two, I don’t have any plan to list the third one as of now.
Q. You are planning to target 25% of your revenue from non-automotive segments. You initially started acquiring some startups in healthcare. Traditionally, you didn’t have much excitement for segments beyond automotive?
VCS: In 2015, when we were making our five-year plan and set the target to go to USD 18 billion, we were already among the top 10 global auto ancillary companies. It was clear at that time itself that in the five-year plan we are going to be 99% automotive and 1% for new areas where we wanted to go. In the last five years, we have been putting seed money into different verticals.
LVS: We are not going to take some wild bets into the unknown. We are choosing fields like manufacturing healthcare products out of plastics for which we have a capability.
The same strength that we used in automotive we want to bring that to the healthcare industries by manufacturing those devices as well. We have a lot of strength in metal manufacturing, plastic manufacturing with good engineering capabilities and global supply chain solutions, operational excellence and using the financial discipline that we have built in the automotive side; we want to bring it to these sectors as well.
Aerospace, healthcare, logistics and IT are the new areas we target. In the past few years, we have got teams and experienced personnel in all these verticals to come and start establishing new verticals. We have gone to the customers in these verticals, shown our capabilities that we have built in the automotive and they are extremely ecstatic in seeing the good quality and name that we have built, and they want that solution in their industries as well.
Plus having a footprint in 41 countries and being able to give them desired solutions is something very exciting for them.
At present 90% of our plants are running at above 85% capacity.Vivek Chaand Sehgal – chairman, Motherson Sumi
Q. We are almost 7-8 months with the COVID -19. Can you share your experience and new learning, and what were the areas that you worked upon?
VCS: The kind of learning was because of this particular phenomenon of being in 41 countries around the globe. In March, China did not have enough masks, so we exported 150 thousand masks from Dubai to China.
Every step that the Chinese government took to allow opening up of the factories we could see replaying all over the world. That was huge learning because we could predict what all could be required. Our own companies were doing a lot of work for the medical people in making masks and shields. We also realised that we are very fast in adaptability.
We communicated with every associate in our group and established a communication system. Today 90% of our plants are running plus 80%-85% capacity. We learnt that cash is very important.
LVS: Many of the plants that we established recently were in the middle of a ramp-up. During this time we got a breather to train the people, realign our entire set-up, bring in the improvements, upgrade and relocate our technology stacks which are impossible to do when the plants were running seven days a week and three shifts a day. That is the silver lining that we see.
Q. How do you see the 2021 recovery in the key markets?
VCS: One particular thing is clearly established: the way people thought about shared vehicles and how they don’t need a private vehicle. They have changed dramatically. Globally we see much footfalls in dealerships. People are buying cars, scooters, motorcycles all across the globe.
The vehicle has now become your own private space of safety. This shift will continue. A mindset change has happened; it is good.
We believe that this trend will continue at least for the next two years. I don’t see this demand falling off.
Q. How will the new regime in the US impact your business? Are you hopeful that Mexico plants are going to do much better?
VCS: Motherson is not an export-oriented company. Even our Mexican plant during the tenure of the present President did not suffer anything.
For increasing our revenue from USD 11 billion to USD 36 billion three regions are going to be our main areas – the US, Japan-Korea and India.
These three geographies will be able to give us the required growth.
No plans to list any third entity from the group.Vivek Chaand Sehgal – chairman, Motherson Sumi
LVS: Motherson procures locally, manufactures locally and supplies locally. We don’t do too much of import and export. We don’t see a significant shift in the locations of our customers. The policy of our company 3CX15 – no country, no customer, no component should be 15% of our total business- has really helped us to sustain any of these short-term macroeconomic challenges.
In the next five-year plan, we are moving to 3CX10, which means reducing the dependence from 15% to 10%.
We are also very excited about the ‘Make in India’ and added ‘Make with Motherson’. We have huge land banks in all automotive hubs in India, especially large ones in Chennai where we are promoting the economic supplier development zone not just for automotive but for any kind of contract manufacturing.
I think these schemes play a critical part in the diversification of our business.
Q. Government’s PLI scheme is majorly focusing on exports, but you want to manufacture locally. So how are you planning to leverage this scheme?
VCS: We are not averse to exports. We have 39 joint ventures. This shows how acceptable Motherson is as a joint venture partner. As a trustworthy company, our partners will definitely want to buy back from us. I think this will take care of exports. But we don’t like setting up a plant entirely for exports.
Q. We see a lot of buzz about electric vehicles globally. But it seems Motherson Sumi is not quite focused on specific components required for EVs? Why doesn’t the company want to get into this space?
VCS: I don’t think that our growth potential will hamper if we do not produce EV-specific products now. From 2002 onwards, we have been acquiring companies on the behest of customers. In the past 18 years, no customer across the globe has asked us to take over a company in the EV space. There are so many other parts that we have to make.
On the road, there are 1.4 billion cars worldwide, and less than a million of them are electric now. It will take 12-13 years for us to reach even half of the ICE vehicles currently plying on the road.
In our next five-year plan electric doesn’t hold any specific place. Maybe in 2024-2025 if we see it happening, we also will move towards it. Our products are agnostic to the engine.
LVS: And if you look at the top 6-7 electric cars globally we are supplying to all of them.
Q. Laksh Vamaan, what’s your next game plan to take the Motherson Group to a new level? How is the succession plan shaping? Will there be any change in the promoter share?
LVS: There will be no change in shareholding. We don’t want to dilute our equity either. If there is a significant acquisition which requires us not to take on too much debt we are open to dilute some equity. Our focus is on USD 36 billion.
VCS: We were USD2 million when we listed in 1993, and every year we were having a top-line growth of 35%. And we returned to our shareholders 32% every year. We are looking for all-round composite growth, including our employees and shareholders.
Q. To achieve USD 36 billion, what will be your Capex and investment plan?
LVS: From a Capex perspective, we are making about INR 2,000 crore of investment. That’s what we did last year. As we will do acquisitions and greenfield projects, we will come back to the market and disclose the numbers. By next March we will come with a new budget.
At the moment, it is going to be small and medium. From January-February you will start seeing medium and large companies.
