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Reflecting Growth - Motherson Sumi Systems

By Kaustubh Ghotikar | 12/6/2010 2:27 PM Monday

There are very few companies who challenge themselves by setting ambitious targets and then go ahead and achieve them. Motherson Sumi Systems (Motherson), an auto ancillary player, is one such firm. Whether it is attaining the aim of becoming a billion dollar company with 60 per cent of sales outside India, contribution from a single customer not exceeding 20 per cent, maintaining a ROCE of 40 per cent and a shifting dividend policy of 40 per cent to its consolidated profits by 2010, the company has done it all. Putting in place its own five-year plan, the firm has continued to set higher benchmarks for itself and has now drawn up an ambitious vision for 2015.

Established in 1986, Motherson is one of the largest auto ancillary players in India today. The company operates through four segments, namely wire harness, polymer components, mirrors and rubber/metal components. The company derives 95 per cent of its total revenues from the auto sector while the balance 5 per cent is from non-automotive revenues. The game-changing factor for Motherson came in March 2009 when the company went ahead and acquired Visiocorp now renamed as Samvardhana Motherson Reflectec (Samvardhana) for a cash consideration of Euro 25 million (funded through internal accruals) and allotment of 5 per cent consideration shares having face value of Euro 1.5 million. Explains Pankaj Mital, COO, Motherson, “Visiocorp acquisition was done at the behest of our customers and we were the only company that were in discussion with the hedge funds who owned the company. It was a distress sale and in a distress sale it is only negotiation that happens.”

It should be noted that Visiocorp (now called Samvardhana) is one of the top three manufacturers of rear view mirrors in the world. On a standalone basis, the company’s revenues for FY10 stood at Rs 1758 crore while on a consolidated basis, the total revenues were a massive Rs 6702 crore.As far as the revenue break-up is concerned, on a consolidated basis 62 per cent is derived from the mirror division, 27 per cent is wiring harness, 8 per cent is the polymer component and the balance 3 per cent is rubber/metal components.

There are various reasons why we believe Motherson will do well in the coming years. Firstly, the acquisition of Visiocorp or now Samvardhana was the turning point for Motherson as it truly put the company on the global map and transformed it to a Tier I supplier to the global auto industry. This also means the company would enjoy better pricing power, leading to better margins. In FY10, Samvardhana contributed an overall revenue of Rs 4158 crore to Motherson’s total topline. What’s more, Samvardhan’s revenues are fairly de-risked with 45-46 per cent of revenues coming from Europe, 35-40 per cent from Asia and 15-20 per cent from the US and Americas.

 

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