Motherson Sumi eyes 2 more acquisitions; to hold 25% CAGR

For the second quarter ended September 2014, consolidated net profit fell 25.2 percent year-on-year to Rs 104.4 crore due to exceptional expenses of Rs 124.3 crore. Profit in the year-ago period was Rs 139.6 crore.

Consolidated revenue grew by 10.7 percent to Rs 8,016 crore in second quarter of current financial year 2014-15 compared to Rs 7,243 crore in same quarter last year.

Below is the transcript of Vivek Chaand Sehgal's interview with Sumaira Abidi and Nigel D’Souza on CNBC-TV18.Sumaira: You have incurred about Rs 84 crore expenses on account of your bond issuances. Is this a one-time cost; is there any incremental cost that you will have to now incur next quarter as well? A: It is a one-time cost. A portion of this particular cost was already done in the first quarter. The second balance and the final portion has been written-off in this time. So, as the prudent policies that we follow, we always write-off the entire thing and take a one-off on it rather than carry it over two to five years as my peers do.Nigel: How much debt have you refinanced in the first half of this financial year?A: What we have done is we have removed all the guarantees that Motherson Sumi had given on behalf of Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP) by creating a new body called SMRPBV and they have gone for a euro 500 million bond issue. Those particular things allow Motherson to actually give ourselves a lot of headroom. So from Rs 2400 crore worth of debt guarantees that we had given, we have come down to less than Rs 760 crore.Sumaira: Any more details that you can share with us in terms of the acquisition of the assets of Minda Schenk, what is the acquisition cost, revenue and so on?A: The customer is driving us to pickup companies. It is one of the smaller companies that we had to takeover in emergence and also the Stoneridge Inc which we did. So these two acquisitions we had to complete very quickly. There are two more on the anvil. Minda Schenk is close to about euro 25-30 million and the acquisition cost is a dollar may be. Nigel: Can you throw some more colour on the number of acquisitions you have planned for the next couple of years and where will the funds come from considering your debt has gone up?A: Two more on the anvil so we think that getting ready for what the customers are asking us so this year we would probably be picking up four more companies. So we believe that two more will happen before March 2015. So we have new orders that are almost there for about euros 1.3 billion, approximately Rs 10,000 crore plus by SMR and SMP. Just the need of the customer is for us to pickup more companies and then they give us more orders. It is looking very good that way. Motherson also is getting a lot of orders from the domestic customers and customers from outside India. Sumaira: For SMR margins have now improved to a little over 9 percent mark. Which are the geographies that have shown improvement and can this margin trajectory now continue?A: For us all the geographies are looking nice. America is doing phenomenally well, US is doing good, we have great traction in Europe as well. The revenues are up plus 10 percent in rupee terms and in euro terms they are up 14 percent.

Q: With regard to Peguform margins have been flat on a sequential basis but you have many new plants coming up in the next one year. Does this mean that the margins for Peguform will surge in the next one year?A: There are 14 new plants that are coming up. This time in the presentation that we have uploaded on to the net, we have actually attached the photographs of the readiness of these plants and which levels these plants have gone to. So definitely we will have a year and a quarter something like that where it would be similar to this but definitely on the improving side. But we are not in any way worried about that because the costs and all these things we have to prepare for huge orders that we have already got. So we have to prepare for that, there is no way out on that but operationally we are doing better. Sumaira: What is the reason that the debt has increased to over Rs 4200 crore which compares with just about Rs 4000 crore in Q1 and what was the usage of funds beyond this Stoneridge acquisition?A: Actually we are now 100 percent owners of SMP, earlier on we were only 84 percent. So we bought the shares of our cross holdings and now it is a 100 percent subsidiary of SMRPBV. SMR also we have bought out the minority shareholders, only one shareholder is left so we own almost about 98.4 percent of SMR. So for that particular thing there is slight increase in the debt but otherwise everything is under control and there are no issues on that. Infact Rs 932 crore worth of capex in the first half has been funded from internal accruals. So we don’t really have an issue on that just to buy out the minority shareholders.

Nigel: What is the compounded annual growth rate you can expect and will this growth be hurt by the weakness we have seen in the European region?A: The revenue growth we are still maintaining on the group level at about 20-25 percent and on Motherson Sumi Systems Limited (MSSL) we are looking at anywhere between 20-25 percent minimum. However, all these things are likely to get a little bit affected by the euro weakening against the rupee or the rupee getting weaker against the dollar. So all these things play out but on euro terms, globally where we are looking at the whole of Motherson Sumi we are looking at about 20-25 percent growth coming up.