Will meet targeted turnover of Rs 40000cr: Motherson Sumi

In an interview to CNBC-TV18 Vivek Chaand Sehgal, chairman Motherson Sumi Systems spoke about the latest happenings in the company and the road ahead.

He said the management is confident of achieving targeted turnover of  Rs 40,000 crore and return on capital employed (ROCE) of 40 percent by 2015.

On Friday, the stock of auto component maker climbed 6.96 percent to Rs 194.50. The stock hit a record high of Rs 200.95 in intraday.

Despite declining auto sales, brokerage firm Barclays has initiated the company with an overweight rating and a price target of Rs 235. It see upside potential of 22 percent from the current market price. Below is an edited transcript of Vivek Sehgal's interview on CNBC-TV18. Q: A lot of brokerages are bullish on you because of a proxy play in the domestic market. How are you doing in terms of market share within the domestic market considering the November sales that have not been good from an auto sales perspective?
A: The domestic play accounts for almost 20 percent of our business and the car models that we are supplying are doing relatively well. It is also a matter of 800 products that we supply.
So, market share is not much of relevance to a company like ours because we are supplying more content per car. Even if the numbers may go down for a month the content of the car is always increasing and hence we always have a superior result than the market or our peers. Q: Auto market is not showing signs of improvement, how are you seeing your own sales numbers?

A: Yes, auto market is weak but not all cars are slowing down. If you go deep into the numbers, maybe what you are saying is true, but the cars to whom we supply are doing well. Q: Who would be your key customers at this point in time and which are the cars where you do not see the trend playing out? Will you be more excluded from a possible slowdown?
A: I would not get into names and models, but the key point is Maruti Suzuki, Hyundai, Tatas, and everybody we are supplying to, the content per car in these models like the Ritz, Nissans, is important. We are also supplying the wiring harness, the mirror, the air conditioner, a lot of plastic parts. This particular thing is always in our favour because the content per car is more and hence the supply is more. The base numbers of the car production maybe on the lower side but our products are much more used. Q: Would you have a replacement market as well?
A: No, Motherson only supplies 100 percent to the Original Equipment Manufacturers (OEMs). We do not do any spare business. Q: Although your revenues last quarter were down, the net profit as well as margins shot up. Have you gone onto higher value add? What is the reason for this inconsistency?
A: There is no inconsistency. The different parts and models that we are supplying to the content are going up. Automotive car production may show a bit of a downward trend or an upward trend over a period of time, but by and large the year numbers are very consistent. In fact Motherson gives five year guidance and in past five years we have never fallen short of our targets. Q: Your guidance for 2015 is Rs 40,000 crore top-line. Would you stand by that? That is not five years away, are you doubling in less than three years?
A: It is two years away. If you just extrapolate the first two quarters of 2012, we would have already crossed somewhere around Rs 25,000-26,000 crore and are very confident that in the next two-two and half years we will cross Rs 40,000 crore with a ROCE of around 40 percent, which is our target. Q: How is Peguform and the other acquisitions that you recently did, doing? What are the synergies playing out in the next couple of quarters and how are they doing individually?
A: The acquisitions that we do are at the behest of the customers. So it is very important for the customer to see that these acquisitions are actually strengthened and are getting better from where we take them over. Within the first one-one and half years we brought these companies to the first stage. They are absolutely cash positive and are not bleeding.
We have been very successful in Peguform to close down four of their hotspots and made them neutral. Within the next 5-6 months, you will see the other two will also become cash positive and is good for Peguform. SMR which is the mirror company, is doing very well. This year we will cross 1 billion euro as the top-line. When we took over this company 2.5-3 years ago it was just 500 million. They are doing phenomenally well. Q: Even this year you may end the year with free cash flows of Rs 600 crore in cash profit, isn't that money enough to buy another company? Will you look to buy another company?
A: We are always open for a new acquisition and we might be doing due diligences, but it is not necessary that we will take it over. This is because eventually an acquisition is a huge responsibility and unless everything is right we will not takeover. When the market is down it is always a great time to buy. Q: What are your consolidated margins? There was a significant improvement even on the sequential basis in the previous quarter. Do you see consolidated margins rising further, once you start synergizing and it starts showing more effectively on your P&L?
A: Definitely. I am sorry we do not give a guidance on QoQ or even too much on a yearly basis. We will cross the gate on March 31, 2015. We will definitely be close to 40 percent ROCE and this is what we have done for the last three five year plans that we have always given in our annual report. So, every step that we take is towards the improvement of the bottom-line and I am sure you will see some exciting numbers in the future.