Business Standard

Motherson goes shopping to hedge its risks

The company wants to ensure that no country, component or customer accounts for more than 15 per cent of its business by 2020

- AJAY MODI

Motherson Sumi is a “not yet” company. The country’s top automobile component maker does not reply in the negative even if it does not manufactur­e a particular part — “Not yet” is the answer.

People believe it because, in the 30 years since it was set up, the company has grown from one product, wiring harness for the Maruti 800, to a whole range of products: shock absorbers, lightning systems, cockpits, bumpers, rear-view mirrors, and of course wiring harnesses.

In the process, it is the largest Indian maker of automotive components. It clocks more revenue than Bajaj Auto, Ashok Leyland and MRF. And about 85 per cent of its revenues come from overseas. Its list of customers includes the who’s who of the automotive world: Daimler, Ford, Audi, Porsche, to name a few.

“When we went for an IPO in 1993, we had a top line of ~14 crore. That now stands at ~45,000 crore. The car industry has not grown anywhere closer to our rate,” says Vivek Chaand Sehgal, who cofounded Motherson along with his mother — hence the name Motherson.

Set up as a joint venture with Japan’s Sumitomo Wiring, Motherson for many years heavily relied on Maruti for bulk of its revenue. In the mid-1990s, Sehgal saw this as a risk and decided to guard himself against it. Thus, in 2002, he acquired a wiring harness company in Ireland.

Last month, Motherson announced its 18th acquisitio­n and the biggest till date: it will spend ~4,150 crore to take over Helsinkihe­adquartere­d PKC Group which also manufactur­es wiring harness.

Post this acquisitio­n, wiring harness’s contributi­on to Motherson’s revenue will double from the existing 14-15 per cent.

The acquisitio­ns Sehgal did in between have given Motherson quite a diversifie­d product portfolio across multiple customers in various countries. As a strategy, Motherson aims to de-risk its portfolio and is working on a policy whereby no single customer or country or component will constitute more than 15 per cent of its revenue by 2020.

However, around 70 per cent of the company’s consolidat­ed revenue comes from Peguform, an acquisitio­n done in 2011. This company produces various polymer-based products for light vehicles. It also happens to be among the leading global manufactur­ers of rear-view mirrors for cars. It also makes door trims and bumpers.

It’s a two-way street

While there are several instances of overseas acquisitio­ns by Indian companies failing to deliver the desired results, Motherson has succeeded in making the buyouts work. It has turned loss-making companies profitable.

“It is not only about teaching the company you acquire. There is scope to learn as well. Once this happens, there is a great opportunit­y. Not only you are improving him, he is also improving you,” says Sehgal. “In the Gita, Krishna said you have to strengthen the Gods and the Gods will strengthen you.”

Sehgal’s way of dealing with the workforce is also unique. In all places, he makes sure that the leadership is local. “In Pune, you will find a Marathi, in Punjab you will find a Punjabi. We don’t have hassles,” adds Sehgal.

This is important in view of the fact that Motherson today has a presence in 26 countries and employs over 84,000 people (PKC will take it to 106,000) in its 200-plus facilities.

Sehgal says companies are not acquired solely for profits or to become number one in a business. “There could be a strategic importance. It’s not always about money,” he adds.

According to Sehgal, sometimes, companies are taken over because the owners do not wish to run them anymore. He insists that for Motherson, all acquisitio­ns are guided by its customers. “The customer tells us where to go. We do not strategise. Car makers are happy that the business is stable and want to give more and more orders”.

Thus, Sehgal believes Motherson could help PKC achieve its expansion plans, given its strong presence in Asia Pacific. The company wants to exploit the Asian transporta­tion market, where leading global commercial vehicle manufactur­ers are looking to expand sales.

All these years, Motherson has remained focussed on catering to vehicle makers and does not serve the aftermarke­t. That’s because Sehgal feels the aftermarke­t distracts the focus as one has to invest time and resource in cash collection from multiple channels.

Standing tall among peers

Motherson has grown at a fast clip for several years now, and Sehgal feels there is still a lot of upside left. The rising dependence of vehicle makers on vendors has triggered huge growth for the component industry. In the past, manufactur­ers used to make a bulk of the parts in house. It is the reverse now.

Sehgal says manufactur­ers need a stable long-term solution, underlying the importance of strong relationsh­ips with customers.

The rising global abilities of Motherson have been recognised by the huge orders it has bagged from top auto makers. In April 2015, it got a new order worth ~15,400 crore from Daimler for a number of future cars of Mercedes-Benz. Motherson is setting up two new manufactur­ing facilities, in America and Hungary, to service the new orders.

Germany’s Daimler has quickly moved to become the second biggest global customer of Motherson, from sixth only a year before. It has overtaken Volkswagen and Ford, now bringing about a tenth of the revenues for Motherson.

Audi, another German luxury car maker, remains the largest contributo­r to the revenues, accounting for a fifth. Audi is part of the Volkswagen group but Motherson treats it and other brands in the portfolio, such as SEAT and Porsche, as individual customers.

Sehgal has set an ambitious target to reach $18 billion in revenues by 2020. “Top line is vanity. Bottom line is sanity. Cash in bank is reality,” is Sehgal’s mantra. He says he will have no shame if he is unable to reach the target of 2020 but successful­ly maintains the return on capital employed, which is currently at 27 per cent (consolidat­ed) and 43 per cent (standalone).

Industry veterans admire the growth story of the company. “Motherson is the biggest example of growth; no one else has matched it in the sector. Sehgal was clearly focussed on growing and being profitable. And the intention behind profit was to reinvest in growing the company. Quality and cost are factors behind the large global orders bagged by Motherson,” says R C Bhargava, chairman of the country’s biggest car maker, Maruti Suzuki.

“THE CUSTOMER TELLS US WHERE TO GO. WE DO NOT STRATEGISE. CAR MAKERS ARE HAPPY THAT THE BUSINESS IS STABLE AND WANT TO GIVE MORE AND MORE ORDERS” VIVEK CHAAND SEHGAL Co-founder, Motherson

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