Motherson sees no major hit from client Volkswagen's fiasco

Sehgal, chief of India's largest auto ancillary group, also allayed analyst concerns over its exposure to leading Indian carmaker Maruti Suzuki -- where it has enjoyed near dominance -- amid reports Maruti is looking to diversify its vendor base.

But he said such a move will not impact Motherson's revenues as the company itself has been taking steps to reduce its revenue dependence on any one client.Below is the transcript of Vivek Chaand Sehgal’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.Latha: How much of the revenues get impacted by the US sales of Volkswagen? A: First of all it is total overreaction. People don’t understand the implication of the whole thing. Winterkorn has said that they will stop selling the diesel version. However, they will sell the petrol version; they will sell all the other things. So, there is no impact as such and there is no sense of bomb fallen and that it is over and no more car sales or something like that; it is nothing like that. In fact if we quantify the whole thing, it would probably be a percentage of percentage.Latha: What would be a percentage of a percentage, your revenues coming from the diesel cars of Volkswagen in US? A: It is hardly anything because of the fact that we are not supplying in US. We are supplying in Europe. Now, what is going from Europe to America we don’t know and basically I don’t think much is going anyway. So, this is the thing about probably knowledge. The best way to explain this is that people are just overreacting.Latha: What would be a percentage of a percentage, your revenues coming from the diesel cars of Volkswagen in US? A: It is hardly anything because of the fact that we are not supplying in US. We are supplying in Europe. Now, what is going from Europe to America we don’t know. I don’t think much is going anyway. So, this is the thing about not having knowledge. The best way to explain this is that people are just [market is] overreacting.Latha: The fear is that the image could impact Volkswagen sales in Europe as well. Is there any chance at all?A: No, it will not. I can assure you it will not. This is not the first time that such a company has gone through these kinds of situation. I mean name a big company that has not gone through this. Every single big company has gone through that. The bringing out of issues and recalling cars is a natural thing. It is something where somebody makes a mistake, they find out later and they want to then rectify the whole thing. Not something which is very new or something, every single car maker in the world has gone through recall and some will get over it. There are no issues.Reema: The other fear is that on the group per se a penalty will be imposed. Some people say it could be to the tune of USD 18 billion which compares with the group’s only USD 4.5 million of net income that it clocked-in in the previous year. Do you have any receivables from the group per se and if yes, what would it be and would be that be at risk on account of the hefty penalty which...A: [Interrupts] I would suggest that you have a look at their rankings in the market. They are a AAA plus, a very high ranking company, we would not even bother to ask about these things. At the end of the day, Volkswagen is a huge corporation and I do not think what you are saying has any impact on it.Reema: But, just for the sake of numbers, could you tell us any receivables that you have from the Volkswagen?A: What do you mean receivables? We are operating all over the world. You are asking me off the top number of the receivables.Latha: No, since you are a very big partner of Volkswagen, have they told you what the penalty could be?A: You are again saying I am a big partner of Volkswagen, I am very grateful that you think I am. But the thing is there are many more bigger players than Motherson in the whole scheme of things. And this is something which is not worth – tomorrow morning, they are not going to have to pay the fine. Let the whole thing play out and you will come to know what it is. You will also come to know what is the power of, the financial powers of a group like Volkswagen. Please understand and appreciate, there are car makers all over the world.Latha: We have to ask you these questions because the stock is down 20 percent and this is what investors tell us which is why we are asking you? A: You must be thinking that since our share price, we must be under pressure or something. We are totally without pressure. Whatever the investors are doing, the prices are going up, down -- it doesn’t make a difference to us. We are not buying, we are not selling so where is the problem?Latha: There were people who were watching the ancillary market saying that Brazil has withdrawn from supplying to several US companies in a big way. Have you increased our share to any of the car companies lately? Has your business grown in terms of revenues or orders from any of the other companies? We hear that Brazil is not supplying the way in which it used to.A: We do not know about this. In our first quarter, our mirror business has grown by 22 percent and our SNP has grown by 25 percent. So, I do not know.Latha: I was asking you whether you see a business opportunity.A: If there is such a thing, then the customer will definitely call us and will ask us to make up those, because we do not do anything without the customer.Latha: Can you tell us if we should expect increased business for you from Japanese carmakers now that you are in Osaka for a big deal?A: I am not here for a deal, I am meeting my joint venture partners. I have nine joint venture partners here. So, I am meeting them, having my board meeting with them, I had a conference call meeting three days ago. So, this is all normal business conducting that we do over here.Reema: You were referring to how the SNP, that subsidiary grew by 25 percent in the prior quarter in Q1. Your India business coming back to the domestic story actually saw just a tepid growth of 1 percent. Has it picked up in Q2, the quarter that we are in?A: I can’t give you guidance on that.Reema: Not guidance but direction.A: How can I give you a direction also, wouldn’t that be against the practices?Latha: Will the revenues from your domestic business remain as they were in the Q1 or is something getting tripped away that is the question we are coming back to?A: It is not related anything to the competition. Motherson Sumi is a 100 percent original suppliers, we don’t supply into the open market like what other people do. So, if the carmakers share has come down in the market our share will also come down. So, we are not in the business of fixing numbers. our job is to make sure that the carmaker asks us 4,000 cars and we will exactly supply 4,000 cars. So, ours will be direct mirror image of what the customer is asked us to do. It doesn’t in anyway show that I have lost market share or gained market share, what it shows is the customer has gained or lost market. Latha: We were given to understand the customer wants to diversify his suppliers.A: That is speculation again, but the best thing I can do is if the customer comes face-to-face with me, and he tells me that, I would like to hear it.Reema: So, you hold on to your five year plan of hitting USD 18 billion by 2020 and improving your return on capital?A: No, I do not. Actually the five year target of Motherson is USD 26 billion. And Motherson Sumi Systems’ target is USD 18 billion.Reema: But all these targets stay?A: Bang on. Probably we will exceed it.