Mother­son Sumi’s New Over­seas Buy To Fuel Push Into North Amer­ica

The Economic Times - - Markets + Finance -

Mother­son Sumi, an auto com­po­nent man­u­fac­turer, is again us­ing its time­tested method for suc­cess­ful over­seas ac­qui­si­tions — buy a for­eign com­pany with slen­der mar­gins laced with legacy prob­lems, but of­fer­ing sig­nif­i­cant po­ten­tial of scal­a­bil­ity, both in mar­gin ex­pan­sion and rev­enue growth. This ap­proach is ev­i­dent in its re­cent ac­qui­si­tion of the wiring har­ness busi­ness of Ohio-head­quar­tered Stoner­idge for $65.7mil­lion. A wiring har­ness is a bunch of ca­bles used to trans­mit sig­nals or elec­tri­cal power in an au­to­mo­bile. Mother­son Sumi is the largest man­u­fac­turer of in­te­grated wiring har­nesses in In­dia and the busi­ness model of the newly ac­quired com­pany com­ple­ments its ex­ist­ing busi­ness.

The com­pany suc­cess­fully turned around two Euro­pean com­pa­nies, Sam­vard­hana Mother­son Re­flectec (SMR) and Sam­vard­hana Mother­son Pegu­form (SMP), by adopt­ing the above strat­egy. The ac­qui­si­tion of the wiring har­ness ver­ti­cal of Stoner­idge will bring syn­ergy ben­e­fits to Mother­son Sumi. The prime mo­tive for ac­quir­ing the wiring har­ness ver­ti­cal is to make in­roads into the high po­ten­tial North Amer­i­can mar­kets, where the com­pany has limited pres­ence. The ac­quired ver­ti­cal will give the com­pany ac­cess to six man­u­fac­tur­ing plants in Mex­ico and the US.

Sec­ondly, the gross mar­gin at the wiring har­ness seg­ment of Stoner­idge is nearly 18%, which can be scaled up sig­nif­i­cantly by the new man­age­ment. SMP and SMR wit­nessed man­i­fold mar­gin ex­pan­sion af­ter be­ing taken over by Mother­son Sumi. In the March quar­ter, SMR recorded an op­er­at­ing mar­gin of 10.6% and SMP 4.6%, com­pared with a low sin­gle-di- git mar­gin for SMR and a neg­a­tive mar­gin for SMP when they were ac­quired in 2009 and 2011, re­spec­tively. “Our fo­cus for this ac­qui­si­tion is to get more cus­tomers and let more ver­ti­cal in­te­gra­tion hap­pen, which would give us more rev­enue growth and enough room of mar­gin ex­pan­sion po­ten­tial. In the long run, when we will un­der­take in-sourc­ing ar­range­ment, this would lead to more mar­gin ex­pan­sion,” said GN Gauba, chief fi­nan­cial of­fi­cer, Mother­son Sumi. Third, the rev­enue of the ac­quired ver­ti­cal stands at $300 mil­lion and it has a mi­nus­cule mar­ket share in the wiring har­ness busi­ness. The man­age­ment is con­fi­dent it can ramp up vol­umes on the back of de­mand from ex­ist­ing and new cus­tomers. Un­der the pre­vi­ous owner, the wiring har­ness ver­ti­cal was not per­form­ing well as the man­age­ment was fo­cused on the elec­tron­ics busi­ness.

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