Will continue to outperform auto industry: Motherson Sumi

Pankaj Mital, COO, Motherson Sumi Systems, feels the company's performance has been resilient in a volatile market, and has outperformed the industry. Talking to CNBC TV18, he stated that despite the slowdown, the company continued  to bag large orders, recently from European carmakers too.
Motherson Sumi had acquired a majority stake in plastic component maker Peguform. He said that Peguform's gross profi was positive, and expects to see it contributing to the group’s targets for 2015. 

Also read: How Motherson Sumi became giant auto parts manufacturer Below is the edited transcript of Mital’s interview with CNBC TV18 Q: In the quarter gone by, we saw significant margin expansion both in your standalone as well as in the international or the Samvardhana Motherson Reflectec (SMR) business.
Could you tell us how much more margin expansion we could expect ?
A: I would say that our results demonstrate the company’s resolve to perform better and better even in the volatile market conditions. We are continuing our journey, we are on the right track and on the right path to achieve our 2015 goal. Q: The numbers that we get from auto sales in India at least are pathetic, and nobody is predicting that things are going to turnaround anytime soon. How will you foresee the first half of FY14 for your company?
A: We look at it in a longer-term, that is why we make a five-year plan. We remain optimistic about the industry and are very focused on the automotive side.
The performance of the company comes from trust and confidence,
which the customers repose on us, and also the performance of our teams.
So, we have been able to expand by adding content per car and various geographies in the globe. Q: I was looking for some numbers that you may share with us for FY14?
A: The numbers on a calendar year basis or on a quarterly number basis are not in our hands, as they depend on how car sales. Original equipment manufacturers (OEMs) are in the better position to give those numbers. However, having said that, we can say that we would be performing a shade better than the market.
We have been gaining more ground because of customers’ trust and getting new platforms from carmakers. As we announced at the end of the first quarter, we got large orders from the carmakers, and recently also from European carmakers.These strengthened our position. We are able to grow despite the slowdown in the market. If the market picks up, then we could see better growth. Q: When you expect Peguform to turn profitable?
A: Peguform is already profit before tax (PBT) positive if we do not take the mark-to-market (MTM) losses which we have booked.  It has shown phenomenal performance this quarter. We have 4 percent EBITDA level which was much better compared to the same period last year.
The journey has just begun in the case of Peguform. Over a little longer-term horizon, we see all the synergies fructifying and the performance to become even better. Q: Could you give us any kind of indication  when it could turn profitable at a profit after tax (PAT) level?
A: We have these long-term loans and have been booking MTM losses on that. So, assuming we don't take that into cognizance, as it includes shareholders’ loans taken to acquire Peguform, which is on the right track. It has been given fresh orders from new customers.
The synergies will take a little time to fructify, and we do see Peguform’s  performance contributing in a much better way to the group’s targets for 2015. Q: Do you think the standalone revenue rate of 25-27 percent is maintainable?
A: We hope so.  It all depends on how our carmakers perform.
So, it is all at the behest of our carmakers and customers. Q: We saw SMR’s margins improve substantially in the quarter gone by.
Should we expect more of it, does 7 become 7.5 in FY14?
A: That is a direction for us. We want to improve and we measure this in terms of return on capital employed. Then as I mentioned earlier, we have a slated target that by 2014-2015 we would like to inch towards 40 percent, and all of us are working very hard to reach that goal. Q: This margin improvement that you are expecting on a consolidated basis, what is that predication based on? Is going to be any realisation improvement because you might increase prices or utilisations?
A: It is a mix of lot of actions which is our basic operational improvement. We work plant-by-plant, and some plants as we acquired the companies were not profitable. In next three-six months we see much better performance coming from them.
We are also working on the new platforms as we bring in more products. We are a company which supports customers from design to manufacture of the parts. That is where we try to reduce cost. So, it is an elimination of various costs which helps us to improve our return on capital employed.