PKC buy to be debt free, will be EPS-accretive: Motherson Chief

The purchase of PKC Group for USD 609 million will be debt free and 370-380 million euros from qualified institutional placement (QIP) will be used for the acquisition. Also no debt will be raised, said Motherson Chairman Vivek Chaand Sehgal. Maintaining a positive stance on PKC, Sehgal said the company is profit making and its earnings per share (EPS) will be accretive in one year. He also said PKC's return on capital employed (ROCE) will grow from 6.5 percent to 40 percent by FY20. Further, Sehgal said it is difficult to enter a commercial vehicle market and PKC has a major exposure to the US commercial vehicle (CV) market.  He expects the CV market to do well with the new presidency coming in and the impetus to manufacturing. He is hopeful that growth will come from the US market.Below is the verbatim transcript of Vivek Chaand Sehgal’s interview to Latha Venkatesh, Anuj Singhal, and Sonia Shenoy on CNBC-TV18.Latha: On the acquisition, how will you fund, it is fairly large, will it be through debt or will it be through internal accruals? A: We have just done a QIP and allotment, so we can take care of the entire transaction by ourselves. So, we don’t really have to raise any further capital or anything like that. Sonia: Will this acquisition be earnings per share (EPS) accretive in year one itself? A: I think what is going to happen is a) this company is a profit making company. They definitely will be EBITDA accretive and EPS accretive in Motherson. So, we are very excited by this particular thing because this puts us in the right place where we want to be. PKC Group is a very well respected company and I think what is important is that Motherson has taken 34 years to come to about 828-830 million euros and this company is 850. So, actually our wiring harness is going to double. So, very excited by this.Anuj: What is the total amount that you are investing and after this how much cash are you left with? A: It is too early to give all the details over there but approximately 580-680 million euros is the deal amount and we have very strong cash accrual. So, we are not worried about at all. We have got about 370-380 million from the QIP and the balance is all available with us. Sonia: This company has had revenues of 800-900 million euros over the past three to four years. What could the revenue growth trajectory and the margins for this company be over the next one to two years?A: I think the key point is in wiring harness business, especially in the commercial vehicle (CV) segment, this company has major exposure to the US CV market. So, as you know that will set the moment a little bit depressed but with the new presidency coming in and the impetus on the manufacture in US, we are sure that the commercial vehicle market is going to do very well in US as well. So, the growth will come naturally from there. However, the key point is that it is very difficult to get into the CV market unless you already have an existing particular supply. So, for Motherson Sumi, we are already doubling up our turnover and together where we are strong and they are weak and where they are strong and we are weak, vice-versa, we are going to see some very good growth that comes in.The margins and things like that, we don’t guide on but the Return on capital employed (ROCE) definitely will improve. We will improve the ROCE from currently where it is, to our target of 40 percent ROCE. Latha: What is it currently for the PKC Group and how much can you grow it to?A: It’s a huge scope; taking it from 6.5-7 percent to 40 percent.