‘The pain in the system is too much’: Motherson chief Sumi sees a lot of acquisitions
The current geopolitical instability triggered by the Russian invasion of Ukraine is an opportunity for companies like Motherson Sumi to acquire struggling businesses, said Vivek Chaand Sehgal, President of Motherson Sumi Wiring (MSWL) during a media interaction in Mumbai. .
Sehgal was in town for the listing of the company’s shares on BSE and ESN. The company was formed when the home wiring business was spun off from Motherson Sumi Systems Ltd (MSSL). The split became effective on January 5, 2022.
The $10 billion group that has acquired 29 companies over the past two decades is preparing to demand several more in the coming months. All past acquisitions have been led by the automakers he counts as his customers, he said.
“Clients are increasingly asking us to buy businesses. When we have customers behind us, overall success is easier,” Sehgal said, pointing to customer-backed acquisitions as the main reason for the success of the group’s inorganic growth strategy. Many companies have tried acquisition but failed miserably. But Motherson did it year after year amid the worst crisis the world faces and succeeded, he said.
“There will be a lot of acquisitions because the pain in the system is too great,” Sehgal said, avoiding giving a definitive answer on the number of takeovers, the country of origin of the target company or the segments in which the company is looking for a takeover.
Commenting on the impact of the current geopolitical instability and its impact on the company’s Vision 2025, the plans are on track and the envisaged objectives will be achieved. On whether he is worried about the company’s high debts, he said: “We are able to be debt free but we don’t want to be,” he said, indicating that the cost of borrowing in India at 18% is much higher than the cost of debt to equity which is 1-2%. Therefore, the company prefers to have debt on its balance sheet. Moreover, in proportion to the turnover of the company, the indebtedness is negligible.
MSSL raised Rs1000 crore through non-convertible debenture issues in the third quarter of FY22. This would be used to fund working capital requirements and debt repayment. The company’s consolidated net debt decreased from Rs 7,600 crore in September 2021 to Rs 8,700 crore in December 2021 due to higher working capital and a reorganization programme.
As the headwinds currently facing the automotive industry globally, including the continuing inflationary trend in commodity prices, supply chain disruption puts pressure on the operations of a company with operations in 41 countries and with 285 factories, a strong relationship with customers has helped the group weather the storm. The company has two factories in Russia. While the operations of the first, which cater to the local market, continue, the company is in the process of liquidating the operations of the second, which supplies European customers.