Motherson Sumi maintains 2020 guidance of becoming $18 bn co

Auto component maker Motherson Sumi Systems (MSSL) today reported 20.90 percent increase in consolidated net profit at Rs 307.35 crore in the first quarter ended December 31.In an interview to CNBC-TV18, Vivek Chaand Sehgal, Chairman, Motherson Sumi Group, says he is confident of achieving the growth guidance of USD 18 billion by 2020. He is of the view that there is no reason to believe growth will slip below 7 percent as Motherson grew 11 percent in the nine months of FY16. Sehgal further says that topline is completely dependent on auto makers.Further, the company's overall orderbook stands at 12 billion euros for SMR Automotive and Samvardhana Motherson Peguform (SMP). There are 17 new plants coming up across different parts of the globe, of which seven plants are ready for production already. Sehgal adds that the company will add 10 new plants in next six months.On the China issue troubling Motherson, he sees the company's growth limping back to normalcy. Below is the transcript of Vivek Chaand Sehgal’s interview with Anuj Singhal and Reema Tendulkar on CNBC-TV18.Reema: Your numbers are below expectations, the revenue growth is only 8 percent this quarter, so clearly there has been a slowdown, has there been a slowdown across demand in Europe?A: I do not have any reason to doubt that this revenue will not grow more than what it is showing here because on a nine months basis, the growth is actually 11 percent. So, one quarter at 8 percent, I do not know why we would look at it at a lower number, but all these particular things are depending upon the car maker and as the car maker orders to us, we supply to that. So, for us, we really cannot control the topline.Anuj: Let us talk about the businesses one by one. Samvardhana Motherson Peguform (SMP) has seen slowdown in margins to 6.1 percent versus 6.7 percent quarter-on-quarter (Q-o-Q). Has there been any pressure there?A: No, you should take that into cognisance that there are two things. One, Brazil, we have written off one-time asset impairment of about Rs 30 crore. And last year Q-o-Q, we had an additional income of the insurance amount which was almost about Rs 57 crore. It was a one-time settlement of our Polinya plant which had caught fire. So, if you put all of this in perspective, actually the earnings before interest, taxes, depreciation and amortisation (EBITDA) is phenomenal. They have done phenomenally well. Their EBITDA has grown more than 29-30 percent. And Samvardhana Motherson Reflectec (SMR) in fact, is the highest ever. They have crossed their 10 percent plus EBITDA. So, phenomenal performance by both of them. So, if you look at these two things amongst SMP and SMR, you will see that Samvardhana Motherson Automotive System Group BV (SMRPBV) given very good numbers under the circumstances.Reema: So, do you believe the margins of SMR which stand at 10.6 percent now are sustainable?A: I hope it is not sustainable, in fact, it should be improving. So, as their new plants have come in, we have attached 17 new plants that were working of which seven plants will be reporting for the last time because they have now been handed over to the production. So, all these particular things are coming to their capacity ramp up and things like that. So, in fact, the turnover for the first time in nine months, they have crossed a billion euros. And EBITDA margins are the highest, so their performance will improve even better. Anuj: What is the order book for SMR currently? At the end of the first half it was 3.9 billion euro? Any fresh orders in Q3?A: I think the total order book we have guided you in the last six months, we will not guide you in this quarter. The next quarter end, the fourth quarter end, we will guide you the total order book which is there for every company. So, what we do is every six months we give you the order book and every six months, we give you the new plants that are coming up in the group. So, this time it is new plants coming up in the group. But, we have an overall, if I am not wrong, SMRPBV. Has about 12 billion.Reema: There is a lot of concern about slowdown in the European markets so will you then stick to your USD 18 billion revenue target for 2020?A: We are very confident that our growth will sustain. We have given a clear guidance in 2020 that we will be an USD 18 billion company and we are well on our way to that. I think the distinction between Motherson and the other companies which you are trying to compare us with is the fact that we are always increasing content per car so the growth in automotive industry is not a driver; it is a small driver. What is a bigger driver is the additional components that we keep on adding into our range. So, at the moment Motherson is about almost 1,100 components. So, maybe by 2020 we will be about 2,000 components. So, it is the increase of the content per car which drives Motherson. So, if you compare it only with the car growth, it is probably a fallacy. Anuj: S&P has a big exposure to the China market, how does demand look in China? A: It is a bit difficult to project but we are seeing it limping back to normalcy. The bigger cars are not selling so much or something like that but the medium and the small cars doing very well. So, we are okay because our range is completely all throughout. So, one segment may come down, the other segment goes up, one part will come down but for example in SMRPBV the minutes are doing very well, so, the SMP is also doing very well. We are okay with that. Our job is to make sure that every country our plants are operating well and efficiently enough to generate profits and that is the more important part for Motherson. We believe very strongly in topline vanity, bottomline sanity and cash in bank reality. So, I think this quarter exemplifies what we are talking about even though it looks like the topline is a bit on the lower side for considering Motherson’s 30-38 percent compound annual growth rate (CAGR) but still looks at the performance of the company, this is exceptional I think.Reema: Even the balance sheet worries have spooked the street. Do you plan to reduce your debt and if yes, how?A: Excellent question. First of all, what you should be seeing is on the balance sheet what is the debt. On the balance sheet, the debt is only Rs 164 crore. In fact, we have brought it down in March 31, 2015 from Rs 387 to Rs 164. The total amount payable due within the year is only Rs 227 crore. And Rs 4,500 crore is a mismatch because of the growth that is happening, new plants are coming, capital expenditures (Capex) are coming in. We will keep adjusting it as the requirement is, but also the euro which has to be reported in our balance sheet is in rupees, that also makes an effect. So, we are not at all worried about our debt. Our debt is less than 1.1 times our EBITDA for the total debt. So, I do not understand why the market is worried about it, because we are not worried about it at all.Anuj: Final question, you did mention your 18 billion target for 2020m, but the market wants to end up near-term. What about end of FY16, if you could give us some picture on that.A: Motherson thrives when there is disturbance all around, and it thrives even more when there is good news all around, so we are in the acquiring mode. 18 billion will not be done without acquires. The more the trouble in the waters, the more the opportunities that come to us and that much more cheaper. So, all I can tell you is, we just need one or two acquisitions to happen and we will cross our 18 billion, we are not even worried about that. We are focusing on exactly the operational excellence and there is a team which is focusing on the acquisitions. We are doing due diligences but I cannot share with you anything just now.