FY25 topline target remains unchanged at $36 billion despite global challenges: SAMIL Chairman VC Sehgal

Vivek Chaand Sehgal, an auto components industry billionaire, is the chairman and co-founder of the $10-billion Motherson Group, which was established in 1975. He draws the biggest chunk of his wealth from flagship Samvardhana Motherson International Limited (SAMIL), formerly known as Motherson Sumi Systems Limited and India's largest auto components maker by sales. Last year, he announced plans to demerge the domestic wiring harness business of Motherson Sumi and created a new entity called Motherson Sumi Wiring India Limited (MSWIL), which also got listed this year.

While interacting with Moneycontrol.com recently, Sehgal says that despite multiple disruptions, SAMIL’s previous target of $36 billion remains on track. Edited excerpts:

Early this year, you demerged SAMIL and MSWIL into two separate entities. What was the long-term objective behind this strategy?

We were being persuaded by Sumitomo san (our JV partner Sumitomo Wiring Systems) because Motherson had gone into different avatars. We were getting into a lot of products. Wiring harness had almost come down to about 20-25 percent of our business. Interestingly, even the shareholders were very confused about what Motherson was doing.

We could clearly demerge Motherson’s wiring harness business for India and put it as a separate joint venture. And, all other businesses of Motherson, we could put together in SAMIL. I thought it was a great timing (and a) great, opportunity for us to clarify and also address the requests that were there from Sumitomo san and from the other shareholders.
For us, the way we have done that is that SAMIL is actually owning the joint venture with Sumitomo san also. So, for the shareholders who are there in SAMIL, there's complete, clear focus on Motherson. And, those people who like only the India play, they are into MSWIL. So, in that sense, we have tried to sort out whatever confusion that people had.

Talking about your recent financial results, while you had maintained that the results were on expected lines, some analysts were skeptical. Would you like to share your thoughts on that?

We follow the mercantile system of accounting in which if there is a cost or anticipation of a cost, we will mention it a hundred percent. If something is expected on the profitability side, we will wait for it till the money comes into our company; only then will we provide it in our results. So, that's the reason why we have to be more conservative in doing it.
This has been explained to all the shareholders that it is a conservative way of trying to present your results. And it does not necessarily show you phenomenal numbers, But I think over a period of time, maybe this quarter, maybe next quarter, you will start to see those particular effects happening and they will come into the bottomline. In spite of all the raw material, manpower, power and logistics costs going up, we're still making profit.

As the world reinvents itself post COVID-19, has it brought any change in your approach towards expanding your operations? If yes, what kind of strategies have you reworked?

We are a bit better off than a lot of other companies because we have a lot of plants in China and that's where it (COVID) happened. We have some plants in Wuhan also, for wiring harness. Therefore, we saw it actually opening up over there and then we worked on all the things that were necessary over there. So, we actually had the benefit of a lot of knowledge unlike my peers and other companies.

We have been learning from that and it is a VUCA world and there is tremendous amount of volatility and uncertainty. The world has completely changed and nothing is predictable anymore. It is a different world and we are that much more resilient and focussed on finding ways and means very quickly. If you call that a strategy, maybe. Today, BC doesn’t mean Before Christ; it means Before COVID.

Given issues such as economic slowdown, rising inflation, cost pressure and Brexit-linked problems, auto sales are believed to get impacted in Europe. How does this impact OEM sales and your orders?

The last reported orderbook of Motherson was $16.1 billion. In another two months, we will be announcing our current orderbook size. So, I think, all these things that Europe is down and America is down, or this is up, and this is going down, they don't really make so much of a difference. Please understand there is a huge chip shortage that was being experienced by a lot of OEMs. Now, in such a scenario, the first thing that happens is that entry-level cars are the ones that get hit first because their chips are moved into the upper luxury segment. So, our entire repertoire of orders is more in the upper segment and not so much in the entry level cars per se.

You have a wide gamut of product lines and all of those are powertrain agnostic. So, is there any new product line that you are exploring, and if yes, are there any inorganic growth plans?

We don't wake up in the morning to say we are going to take over this company or that company or something like that. But basically the carmaker asks us to go in a particular direction. We have done 29 acquisitions and all of those are doing very well. And, of course, we have 39 joint ventures. So, at the end of the day, whatever is recommended by the carmaker, that's where we go and try to sort out the particular problems of that company and then build on that.
Definitely, there are a lot of things, a lot of companies, which are in trouble at the moment. There's general fear globally because they don't know all these changes that are happening in COVID, logistics, power, manpower; every single thing that you can imagine; the costs are going on the higher side. So, there is a general reluctance among people to get into that. Definitely you will see a lot of companies that we will take over as time comes. I think, within the next six months, you will see a big change in many new product lines and many new places.

The global automotive industry is transitioning towards e-mobility and India too is making rapid strides on that front. Are you well geared to cater to these EV makers?

Amongst the electric vehicle (EV) manufacturers, of the top 10 EVs in the world we are official suppliers to eight. We are in the right place for electrification.

But I have a personal view and I have a company view. The company will deliver whatever the customer asks for. In our segments, the wiring harness segments, the polymer segments, the value will only go up. It won't go down because they are working at 200 amps, 400 amps, and things like that. In the plastics and all that you have more engineered plastics rather than normal plastics, which are being used for these cars. It's a no brainer that we are beneficiaries. On the personal side, I think till the time the world gets into pure clean electricity, the whole thing is lost. If you are generating electricity through not-so-green sources, then it becomes a bit difficult.

Do you have plans to explore batteries or its parts?

Over the last 20 years, we have done a lot of work with carmakers to solve their problems. I have not been asked by even one carmaker in the world to produce batteries or battery parts. There is a lot of money chasing batteries and related products. And believe me, dime a dozen, there are so many bankruptcies. But still no carmaker has asked me to get into or take this particular company.

So, I think the answer is quite evident, a lot of money is following it, even if you burn something, the market enjoys that they (the start-ups) actually give it a huge valuation. The more money he burns, the more the company becomes valuable. So, I don't know, it's a different world. But in real terms, we have not been asked to go and do the same thing.

There have been a series of disruptions over the last years. Has that resulted in any change in your long-term targets?

(During) every major crisis in the world in the last 25 years we done very well. So, we (at SAMIL) have put out our five-year plan at $36 billion (by FY25) in topline with a 40 percent ROCE (Return on Capital Employed). We have also said that almost 75 percent of that is going to come from automotive. 25 percent from four new (non-automotive) verticals —aerospace, logistics solutions, technology and industrial solutions and health and medical. And we will be using the current manufacturing (capacity) of all the plants to support the four new verticals.

In the first week of December, we will have the mid-term review of our plans. At Motherson, once we have made a plan, we do not change that plan because of the circumstances, because if you do that, then we are not teaching our people that under the circumstances, how we can react to challenges. We keep the goalposts same.

We will not revise our budget or our focus because you don't know the opportunities that are coming up. So, we never recast our turnover targets. We have to measure ourselves on that. So, for FY25, automotive (vertical) will be clocking $27 billion and non-automotive four new verticals will be approximately $9 billion. So together, minimum $36 billion. So, that’s 3X growth.

Lastly, what is the next big announcement at Motherson? Do we see your son taking over the reins?

My son Laksh Vaaman Sehgal (Vice Chairman at Samvardhana Motherson Group) has already taken over the reins from me. I am now holding his hand and he is the boss of the entire group. But that is not how Motherson works. We have a clear distinction between ownership and professional management of the group. So, we don't have our relatives running our companies. And if you're related to Vaaman or me, you are not in the management of the company. Vaaman and I are on the entrepreneur side and rank professionals are the ones who are running all the plants. They have their own succession planning. And I also believe that succession should not be an accident and has to be planned and handed over. So, at this particular time, the next two-three years, my job is to hand over to Vaaman, so that hopefully I can play some golf and enjoy a little bit.