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It seems like déjà vu of 2007-08 Lehman crisis: Vivek Chaand Sehgal, Motherson Sumi

Motherson Sumi has a very solid business case and we will live up to our targets, says Sehgal

ET Now|
Updated: Feb 12, 2019, 01.49 PM IST
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Vivek Chaand Sehgal-1200
Like in 2007-08, a lot of companies have very high valuations! Also a lot of big fund houses are exitin g Motherson Sumi, as like Lehman crisis in 2008, now we have Brexit, trade war and a lot of economies are in a flux, Vivek Chaand Sehgal, Chairman, Motherson Sumi, tells ET Now.

Edited excerpts:

Would you say that the results this time around were mainly driven by PKC and Reydel, given that Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP) growth has been a little muted?

Under the circumstances, in the last quarter, there has been a lot of challenges and in spite of that, every one of our group companies have done well. The revenues are up by 14%, EBITDA is up 13%. Outside India, the revenues are up 16%. You can look at it either way -- that one of the divisions is doing better, the other one maybe doing just average but that is the part of our strategy of 3CX15. That is why we do not want any one particular company to grow phenomenally well. The market is so very fluid and so it is okay. It is a great operational advantage that our teams have. Think about it, we have got 33 new plants in the last four years. The capacities have been ramped up to the expectation of the orders that we had got from our customers.

What then is the progress on the ramp-up of green-field facilities? When can we expect the benefits to be seen? Would the new plant ramp-up offer you some cushion?

Actually what happens is that the new plants are already complying with whatever the new rules of the game are. Definitely, all our new plants will do better, maybe next year second quarter or third quarter. Maybe, that is the time when they would have ramped up 100% and everything would have been very smooth. The confusion which is there in the existing old models could probably be a spoiling factor but it is part of life.

They have to do what they have to do to follow the laws of the land. So, definitely we are at a better place because all our new plants are catering to models which are already approved or have longer life up ahead of them. In that sense, you are right.

Since you indicate that the margin impact is mainly because of ongoing projects, would you say this is the end of that pressure you are seeing, especially since most plants are operational or are in their final stages?

There is truth in what you are saying. The margin is a very important thing for Motherson also, though we do not give a guidance. But yes, it will improve in the coming quarters because as the volume ramp up takes place, everything will start to settle down. You have focus more on your productivity and things like that, and that definitely helps the margins.

Despite the growth you are talking about, the fact is large fund houses are still choosing to exit the stock. Many of them have halved the target on slowdown worries especially on the global front. Are these concerns real?

It seems like a Déjà vu. In 2008, we had the same thing during the Lehman crisis. A lot of funds had exited and I still remember my share price had come down to some Rs 38 but whenever I went to buy, I could not buy any because there was not anything available at that price.

So definitely, it seems like a déjà vu of the Lehman crisis. We have a Brexit, we have WLTP, we have countries which are trying to impose duties and tariffs on each other. The tariff war is going on. Everything is in a state of flux. But the world is much wiser. Whenever these kind of opportunities come, then our acquisition side wakes up because things are going very cheap. There is a plus in everything that you see. I do not blame anybody for exiting or buying. That is their choice but Motherson has a very solid business case and we will live up to our targets and the challenges that we have set.

Any slowdown that you witnessed from Maruti given the kind of bleak outlook that they have set out for the domestic PV players? How is the overall domestic order book looking like and when do you expect the a recovery to come in?

We do not second guess our customers. If my customer feels that there is going to be a challenge, definitely there will be a challenge. As far as we are concerned, Motherson does not only grow because of the orders coming from the customer but also because we are looking at acquisitions and things like that. When we increase the content per car, that is a much higher growth than that of whether the car industry is going up 2% or going down 3%. So, we will take it and one quarter, two quarters okay whatever it is, we will breathe with the market. There is no doubt in our minds on that.

Yours is an acquisition driven company. Help us understand how much growth have you seen from your relatively new acquisitions vis-à-vis the older businesses? Also, what kind of potential do you foresee?

You see the case of PKC. You see the MWSI. All these particular businesses have done phenomenally well because the American market has done very well. So, obviously we can only take credit for the fact that we bought the companies at the right time. We do not spend too much time in these comparisons. We look at what we can achieve with the company. We feel comfortable with the price at what we are buying it at and then we put all our focus into long-term improvement of that company.

If you look at SMR for example, where you talked about muted growth, it delivers a growth of some 40 plus per cent which for me is fantastic. Why should I remove that growth and look just only at the top line. We are very ardent followers of Mr Shah who said top line vanity, bottom line sanity, cash in bank reality.

Well organic growth depends on the growth of the industry. Tell us also about expanding inorganically. Experts say that valuations or recent transactions are still fairly unreasonable. What is the growth rate that you typically look for while scouting for these acquisitions?

We ourselves are a bit shocked at the kind of valuations that is why I say that there is a déjà vu of 2008 because in 2007-08, a lot of companies were being bought at very high valuations! But look at our last acquisition of Reydel, it is just about 1.8 times the EBITDA. It is very fair price that we bought that. We will not do an acquisition just because we have to deliver a top line. We are very clear on that.
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