Despite the current slowdown in India and globally, the Samvardhana Motherson Group (SMG) is continuing with its investments. The Noida-based component maker recently acquired a 51 percent stake in Sinter Metal of Spain and talks to float a special purpose vehicle for the JV are expected to be wrapped up soon. This will pave the way for the Spanish plant to manufacture sintered metal components for suspension and powertrain applications for global customers. A greenfield facility in India is also under consideration for producing the sintered parts.
The well-diversified Group produces electrical distribution systems like wiring harnesses, automotive rearview mirrors, moulded plastic parts and assemblies, injection moulding tools, moulded and extruded rubber components, modules and systems including cockpits, door trims, bumpers, lighting systems, air intake manifolds, and pedal assemblies among a host of components. It currently has a near-25 percent share of the global passenger car exterior rearview mirror market and an over 65 percent share of the passenger car wiring harness business in India. It says it also leads in plastic modules.
According to SMG, it has done well in taking over plants that are in the red and then turned them around. Thus far the SamvardhanaMotherson Group has made around 12 acquisitions. The Visiocorp buy in March 2009, which was turned around from negative profitability to a turnover of 620 million euros (Rs 4,372 crore) in fiscal 2009-10, is expected to cross the one-billion euro mark this year based on first-quarter results.
Similarly, the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) of SamvardhanaMothersonReflectec (SMR) rose from 1.7 percent in the first quarter post acquisition to five percent in the first quarter of the current fiscal with its India operations posting an EBITDA of 16 percent of flagship company MothersonSumi Systems Ltd (MSSL), a JV between SMG and Sumitomo Wiring Systems of Japan.
Likewise, the Peguform Group of Germany, acquired jointly by MSSL and SamvardhanaMotherson Finance Ltd (SMFL) in November 2011, posted an EBITDA of around 4.2 percent in the first quarter of FY’13, up from 1.6 percent in the first four months post acquisition. The turnover of Peguform in 2011 was 1.67 billion euros. Its 2010 sales were 1.37 billion euros with a reported EBIDTA of 66.87 million euros.
Global impact
Vivek Chaand Sehgal, chairman of SMG and vice-chairman of MSSL, says MSSL had given a 2010 guidance forecasting a $ 5 billion turnover by 2014-15 but with the Peguform acquisition and the turnover of 2011-12, it is expected to cross the targeted topline in 2012-13, based on first-quarter results.
For further inorganic growth, the C-level suppliers of carmakers are potential areas of opportunity for the Group. Since about 80 percent of a car is produced outside an OEM’s plant in the form of components, the vehicle maker cannot afford to have a delay in the supply of any part. Hence, the focus to have the supply chain well-balanced and in the vicinity of the OEM in every geography. Both the Peguform and Visiocorpacqusitions were of Tier 1 suppliers, but the 12th acquisition is small at 20 million euros compared to earlier buys.
Currently about 75 percent of SMG’s product line is exported from India for providing global solutions, clearly reflecting that the company is reliant on global business to drive growth. Is this a matter of concern for SMG, whose attempt to raise additional funds through an IPO failed? But Sehgal says SMG is not short of money and its cash flows are very strong for funding future acquisitions. In fact, it is scouting for further acquisitions both in India and overseas based on customer requirements.
Due diligence of three companies is underway with the final announcement to be made by November-December this year. It is mulling growth in the noise, vibration and harshness segment in the next year.
Further, the Group relies heavily on the eight fundamentals of quality, cost, design, delivery, management, safety, sustainability and environment for leveraging growth and expanding its customer base and, consequently, profitability.
Growing footprint
For SMG, the acquisitions are enabling a speedier expansion of its global footprint along with useful learning experiences. This is seen in the buyout of Visiocorp to form SMR, achieving profitability in the first year after acquisition, and integrating it with SMG.
Likewise, for the Group which has been in the field of plastic moulding, assemblies and module integration for over a decade, it has benefited from synergies with Peguform’s product range for its product line-up in plastic injection moulding, door panels, instrument panels and bumpers.
Apart from that, Peguform’s product range complements the polymer product range in India and the synergies in terms of customers served that further strengthen SMG as a global module supplier to automotive OEMs.
Peguform is the second largest supplier of door panels and the third largest supplier of instrument panels in Germany. Besides, it is a market leader in bumpers in Germany and counts VW, Daimler, Renault-Nissan and BMW as important customers. VW accounts for about 23 percent of its sales with the balance contributed by Daimler and BMW. About 50 percent of Audi cockpits and doortrims are made by Peguform besides which it is a supplier for the B-plus segment to the top end.
“When Indian car production goes upto 10 to 11 million, MSSL would not have stood a chance to support international players. Peguform with its new technologies will support MSSL, especially as freight-unfriendly cockpit modules have to be manufactured next to the carmaker,” Sehgal explained post acquisition.
Besides, the combination has enabled a presence in India for Peguform. It has also ensured an increased presence in the BRIC countries for the Indian supplier as Peguform has two plants in Brazil and another in China. With carmakers locating plants in these geographies, module suppliers have to be in close proximity.
Overall, all the top 10 to 12 global OEMs are SMG clients in every market it enters today.
BRIC-layer
To further widen its global footprint, SMG has new markets like Russia on its radar that will complete its good BRIC presence. Potential partners have been identified for a JV, with a possibility of buying into the company stake imminent. SMG plans to strengthen Peguform products as well as mirrors in this market further.
The entity is keen to supply to all global carmakers in Russia as the dynamics of car making have changed dramatically there through use of global platforms. In fact, the ACMA Convention held last month saw the ex-president ArvindKapur exhort component makers to tap the potential of the Russian market.
At present, SMG supplies OEMs in Russia through Germany or England but with the new Russian governmental norms stipulating the supplier to be located in the same country, local production will be critical for growth.
In China, the biggest among the BRIC markets, it already has seven plants with plans to set up another three facilities within the next six months to a year to manufacture existing products that it rolls out for Samvardhana Motherson Peguform (SMP) and SMR.
In Brazil, it has already made major investments with three operational manufacturing units and in Mexico, it will double capacity through a brand-new plant which will combine two of the Group’s existing plants there. Furthermore, with demand for vehicle electronics set to notch good growth, new plants are also being set up in Mexico to make wiring harnesses.
Plans are also underway to expand in the growing market of South Africa where SMG already has seven plants. It is present in Durban for Toyota as well as in Johannesburg and is now scouting for two additional locations in the country.
On the Balkan front, SMG has also received a request from global carmakers to establish a footprint in Turkey. While it is currently building a production unit at neighbouring Macedonia, some of its customers like Hyundai and Toyota are present in Turkey. The Group has a licensee in Turkey and Sehgal clarifies that, if required, it will go there as well.
Ready for growth. . . in India
In India, which at present constitutes a small share, SMG is targeting consolidation and expansion of operationsin preparation for the
10 million vehicle parcby 2020.
With key clients like Maruti Suzuki and Ford India expanding operations to Gujarat, SMG is acquiring more land bank as well as gearing up to beef up capacity at Chennai and Noida in the NCR.
In Gujarat, the Group which already has four plants in Kandla will invest Rs 500-600 crore over a three-year timeframe. The facilities, to be located within 50-100km of the OEM plants, will become operational six months before the two carmakers kick off production. Sehgal says since the Group owns its own construction companies, setting up a new plant becomes easier.
In South India, particularly Chennai, Hyundai Motor India, Renault India and Nissan Motor India are key clients and SMG aims to grow in sync with them. It is well placed to do so, what with its existing 20 plants in Chennai spread over 500 acres.
The Group is also eyeing Madhya Pradesh for growth besides penetration in the Eastern geographies. New production facilities are also coming up at Rajasthan and in Noida as well as at Uttarakhand to cater to supplies for Ashok Leyland among other OEMs.
High on technology through acquisitions
High on the growth trajectory, SMG is mulling average investments of Rs 750 to Rs 1,000 crore by 2014-15.
Neither is chairman Sehgal wary of rising competition in his stream of business. For instance, commenting on the Varroc Group’s recent acquisition of Visteon’s lighting business, he says it is the right growth strategy. He is of the opinion that Indian companies which have entered into joint ventures were weak on the technology front. In the near future, it will be important to have the requisite technical know-how and companies which acquire other entities will also benefit from being the technology owner.
Sehgal also does not consider the slowing growth in the passenger car segment, which constitutes a major chunk of the Group’s business, to be a threat. In the 1990s, when the car industry was not doing well, SMG notched between 35-40 percentgrowth each year. “With 139 plants across the world, the ability to cross-sell and to catch whichever market is doing well is not an issue for us,” he says confidently.
Even with the current slowdown in the Indian market, SMG views more opportunities coming its way, maybe even more acquisitions. Meanwhile, MSSL will maintain its topline target of $ 5 billion for 2014-15 and $ 10 billion for SMG.
By the year 2020, it is optimistic of chalking an India share of 30-35 percent with 60-65 percent to accrue from overseas. Whether the next eight years will prove its predictions right, only time can tell but if there’s an impact from the current global downturn, SMG isn’t showing it.
SHOBHA MATHUR