On track to achieve FY20 revenue target of $18bn: Motherson Sumi

Motherson Sumi Systems reported above expectations fourth quarter results with profit growing by 21.6 percent to Rs 413.7 crore. The company’s revenue improved 8 percent to Rs 10,068 crore while earnings before interest, tax, depreciation & amortization (EBITDA) margins improved 50 basis points to 10.5 percent.

With demand and sales improving, situation is looking good in Europe and the world, says the company’s chairman Vivek Chaand Sehgal. The Samvardhana Motherson Reflectec (SMR) business has touched 42 percent return on capital employed (ROCE). The aim is to maintain this level of growth going forward, he says. Mirror market is expected to grow well with new car launches lined up. Orders for rear view mirrors are constantly increasing, Sehgal says adding that the company’s customers like Maruti, Nissan and Hyundai are doing well, which helps the demand. Sehgal reiterated the company’s FY20 revenue guidance of USD 18 billion and said that Motherson is on track to achieve it. Below is the verbatim transcript of Vivek Chaand Sehgal’s interview with CNBC-TV18's Sonia Shenoy and Latha Venkatesh.Sonia: How has the demand situation looked especially for Samvardhana Motherson Reflectec (SMR) in which you have achieved record margins this quarter?A: The demand is very good, their sales are up and one must take into account that whatever said and done the demand is huge out there. So, we are working almost 19-20 shifts a week. So, things are really good as far as Europe and the world is concerned.Latha: I wanted to understand a bit more about the growth potential for SMR business. Will you be able to see better margins in that business as well considering that now you have new plants coming on stream?A: We don't guide you on margins as we told you again and again but we have already hit a 42 percent Return on capital employed (RoCE). So, what we are going to try and do is in spite of the growth we are still going to try and maintain this particular thing and improve it better, as better as they can go. So, some of the group companies are even hitting 50 percent growth RoCE. So, RoCE is a very important target for Motherson rather than margins.Sonia: So, you have hit a 42 percent RoCE in the SMR business which is very encouraging. What does the order book look like for SMR, what is the pending order book and the order visibility over the next one year?A: What is happening is that today the car makers are coming up with more and more models, more and more variants. And hence you need more new mirrors, new styling, new technology and all these particular things are happening. So, we believe that we are in a very fantastic situation because it is an optical part. Whenever you buy a car you see the mirror in the car and hence the car makers want to see it very stylish and very good. So, for example the entire Jaguar Land Rover (JLR) 100 percent of the mirrors are done by our British SMR. So, it is a very important part of the car. It is the only part that sticks out from the car, so, it is very important. And the market is going to grow very well.Latha: The other heartening bit for the investor is the improvement in the standalone business. Your margins have improved to 20.6 percent versus 17.7 percent in just one quarter. So, is it that you are noticing a genuine pickup in demand?A: Again and again Motherson tries to say this particular point across to the investors we are a 100 percent original equipment manufacturers (OEM) supplier. We do not supply to the open market. So, while the other people are reporting growth of aftermarket sales and things like that we have zero aftermarket sales. So, this particular growth is based because our customers are doing very well. You see Maruti Suzuki is doing phenomenally well, Hyundai, every single car maker is doing very well specially Nissan also is doing very well. So, all these particular things reflect in our sales as well.Sonia: So, what is the amount of cash that you have set aside for acquisitions for the next one year since you did mention that a large chunk of your revenue guidance of USD 18 billion will come from acquisitions?A: All these particular performance has been there after almost Rs 2,200 crore worth of investment done in new businesses and capital expenditure (capex) and all those particular things. So, as far as Motherson is concerned we don't like to keep cash in our balance sheet for the simple reason, it is very harmful for RoCE. So, at any time whenever Motherson wants it can conjure up funds in different avenues. So, we are not worried about that. Our debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) is just 1.15 or 1.16. so, we are very comfortable on our debt, on our ability to raise money, it is not a problem at all.Latha: Since the RoCE metric is so important for you can you improve the RoCE further for the standalone business to beyond the current 43 percent?A: Absolutely, that is one of the biggest strengths of RoCE, because you can keep on endlessly improving whatever you are doing. But please also remember that Motherson's business is a five year - seven year business. After that there is a reset. We don't make one particular part which continues for 20 years or something like that. So, as the model changes, as the variant change our products are also changing. And that is what is really fantastic about our business.Sonia: I just wanted to ask you about Volkswagen as well. You have been telling us repeatedly that the Volkswagen brand itself forms less than 10 percent of your consolidated revenues. So, we shouldn't worry about any slowdown that Volkswagen has guided for their own sales in 2016?A: I don't think there is any slowdown for Volkswagen in 2016 either. They have on their own withdrawn certain engines which doesn't mean that they have withdrawn cars. So, please understand that whatever that this particular problem is related to an engine and that engine is a Volkswagen recall, what they are doing is up to them. It has got nothing to do with the cars and the number of cars. We have been saying that for so many months now.Latha: You have mentioned in your press release that you maintain guidance of USD 18 billion revenues by 2020 from USD 5.7 billion, that is currently your revenue. This means 20 percent of your revenue growth annually. That looks doable?A: We could do an acquisition, isn't it? So, the game changer is always the acquisition. Motherson is an acquisition mode company. We are always open to acquisitions. About three or four months back there was a news article that we were acquiring somebody though we had no comments on that. But had that particular thing been true we would have already been sitting at about USD 12 billion, isn't it?So, acquisitions change the whole particular game. But the story about Motherson is we talk about two targets at the same time. You took the topline target which is USD 18 billion, but there is a bottom-line target there as well which is 40 percent RoCE. So, the target of Motherson for 2020 is USD 18 billion at 40 percent RoCE. So, if both these particular things can be achieved by Motherson, we will go ahead and take that particular company over. On the other side we are talking about 40-45 percent of our target coming out from acquisitions and the balance as the growth of the normal business that is growing all over the world by the new orders that we have. We have a very strong order book of almost about Rs 100,000 crore. So, that is a massive Rs 20,000 crore a year if you take it for a five year basis.