Motherson Sumi eyes acquisitions, plans capex of Rs 2,000 cr

Motherson Sumi's management is upbeat about the times to come as it successfully closed its QIP raising over Rs 1,900 crore. The total amount raised is aorund Rs 2,600 cr along with preference issue to Sumitomo.The company is seeing a lot of opportunities and expects to do an acquisition by the year-end, said Chairman Vivek Chaand Sehgal. He said the company has a capex plan of about Rs 2,000 crore funded by internal accruals.The company has a revenue growth forecast of US 18 billion by 2020, of which 50-55 percent will come from organic growth, Sehgal said.Below is the verbatim transcript of Vivek Chaand Sehgal’s interview with Reema Tendulkar, Sonia Shenoy and Prashant Nair on CNBC-TV18.Reema: If you could first tell us what you are planning to use these funds for, will it be for your 14th acquisition, take us through the utilisation? A: We are very grateful the Qualified institutional placement (QIP) is successful and closed. We are having a lot of opportunities at the moment so some of them are probably fructifying and hence there was a need that we should raise some funds in our mother company and that is what we did. Together with Sumitomo and QIP almost Rs 2,500-2,600 crore has been raised. Sonia: What are the areas that you have in mind where you would like to go ahead and acquire assets and before the end of this calendar year could we look at another acquisition from the company? A: I hope what you are saying is good and it is true for us. We have already acquired one particular company. We also are looking at some more acquisitions as I told you but we are cannot disclose because of sensitivity and some of them maybe public limited companies so that is the reason why we can’t say anything else on that. However, our vision is very clear, it is USD 18 billion at 40 percent growth so we can find both of these things happening. Definitely you can see some more good acquisitions happening. Sonia: To achieve this USD 18 billion target what is the capex plan that you have in the very near future so say in the next one year what would the exact capex plan be and would the bulk of the capex be used for expansion in the European geography itself? A: No, I don’t think that is going to happen. We have a normal capex plan of about Rs 2,000 crore which is always funded via internal accruals almost. When we look at acquisitions and all that, we can’t tell you the geography or anything because now everybody’s stick is out. So, we will keep quiet on that. However, as I said, these are things that our customers have asked us to do so with that in mind and that we two parts of our acquisition not just the topline but also the bottomline, yes, definitely we would be looking at a lot of interesting acquisition and we are already doing some due diligence; that is the best I can tell you. Sonia: Wanted to ask you what kind of R&D expenses do you forecast because I know in the past you have spoken about how you have increased your thrust on building capabilities so what would on an average the annual R&D expenses be for the company? A: I think on a consolidated basis it would be probably 1-1.5 percent. It is more important for you to understand that wherever the need is, wherever the technologies and all are owned by us that is where we are doing a lot of our R&D expenses. So, in that case it could go anywhere between 2-3 percent of the company’s turnover. Prashant: How much have you raised and who are the biggest investors in the QIP? Could you name them? A: I don’t know, definitely we can – I really don’t think we are in a position to disclose who has done what but there were two parts of the QIP, one was this thing from Sumitomo so they maintained their stake of 25 percent plus and one portion was the QIP, that was the mandate that was taken from the board. So, in total I think we have raised about Rs 2,500-2,600 crore or something like that. Prashant: What was the QIP portion specifically? A: It was about Rs 1,990 crore or something. Prashant: What would the gearing levels be post this because you raised debt as well earlier, about USD 300 million? A: That is off the balance sheet of Motherson Sumi, that is an Samvardhana Motherson Automotive System Group BV (SMRPBV) which is our subsidiary. So, in Motherson Sumi Systems Limited (MSSL) itself, there will hardly be any debt after this particular thing is over.Sonia: Even if you look at SMRPBV’s net leverage covenant, it is still at around a little over three times. So, you are still operating much below that threshold level. Why not raise more debt on SMRPBV’s book instead of diluting?  A: Whatever you are saying is one opinion but all of us are very focused on what we have to do and hence that is why we have done what we have done. Sonia: Coming to growth, I wanted to ask you because SMRPBV is your main growth vertical and now there are talks of maybe 18-20 percent growth that the company can perhaps eek out over the next one-two years, is that a reasonable assumption according to you?A: I think it is not very easy for me to answer that question but yes, it is in that direction, yes.Reema: Of your revenue growth forecast of USD 18 billion by 2020, what will be the revenue share on account of acquisition or your acquisition led revenues in this target and what will be organic growth?A: The organic growth will be anywhere between 50 percent and 55 percent but we have two parts of our target. It is USD 18 billion plus 40 percent growth gross. So multiple times we have heard stories that Motherson is going to take over this company and that company but without us being able to deliver a gross of 40 percent in seven years time, we don’t take over that particular company. So these are two parts of our topline and if you understand this particular thing then you will see why we have a strike rate of less than 5 percent only and in 2004-2005 we have raised about 50 million Euros and it took us some four years to do an acquisition of SMR at that time.Reema: If you do an organic growth of 50-55 percent then by the end of 2020, what would your revenues be?A: At that time, it will be anywhere between USD 10 billion and USD 12 billion.Reema: So the rest USD 6-8 billion will be on account of acquisitions is in your current estimate?A: At the moment it seems so.Sonia: Where do we stand with respect to simplifying of the holding structure? I know you have denied it several times in the past that perhaps not anytime soon but just wanted to understand because if there were talks that SMRPBV would be merged in MSSL, thereby allowing shareholders of Motherson Sumi to get the opportunity to fully benefit from SMRPBV's growth story which is the main vertical of growth. So any kind of timeline that you are looking at?A: Right from 2014 January, we have contributed a core committee which is looking into this particular possibility. A lot of people come and tell us a lot of things about it and then I don’t know whether they go to you or where they go but all this particular thing at this moment, the board does not have any paper which tells us that simplification is possible.But as I said, whenever we get such an opportunity, we will definitely take that because we ourselves want to simplify it a bit. When we were in acquisition mode kind of a company, there are many things which drive, which company is going where and how we have to bring that company around and all those things are happening. So we are trying to simplify, we have been doing it for the last two years and nine months, we still haven’t found a good way, the moment we find a good way, definitely we will come back to our shareholders, stakeholders and talk to them about this particular thing but as of now, I don’t see anything.Sonia: Because this is in interest of shareholders and the company perhaps I am asking you once again about the timeline because two-three years is quite some time that you have put into this process, do you think you could fructify something over the next one year?A: The problem is that there are many moving parts. Sometimes we find a particular way, we think it is a good way to go ahead and then the law itself changes. For example, it is an Indian company, so the budget comes in and that law changes, so this particular thing plays out on their own. It is very difficult for the timeline on to it but if I find a good way tomorrow, I will definitely come back to the stakeholders for that but very difficult to put a timeline on that.Sonia: Since you have addressed a lot of geographies globally, ex of Brazil, most of the geographies are addressed, just wanted to understand where you see the next growth potential in terms of geographies across the globe?A: The customers are always finding new geographies for us, so who knows where that will be. But wherever that would be, we are with our customers. We don’t have a problem to go anywhere in the world.