Motherson Sumi explores new acquisitions at low valuations 

by Nilesh Wadhwa 17 Apr 2020

The unprecedented Covid-19 pandemic has brought forth challenges for countries and companies but for a few robust and well-placed organisations, it is an opportunity to drive growth through acquisitions. Motherson Sumi Systems (MSSL), the leading global automotive component manufacturing company, has announced its preparedness to tackle the Covid-19 impact, and also given a glimpse about the growth opportunities that lie ahead.

With market-leading products ranging from electrical distribution systems, automotive rearview mirrors, polymer processing, lighting systems, air intake manifolds and HVAC systems. Motherson’s principal focus is the automotive industry, globally and in India. The Motherson Group recorded a turnover of US$ 11.7 billion (Rs 86,591 crore) in FY2019.

Motherson Sumi says it has taken a holistic approach to protect the interest of various stakeholders including employees, customers, investors and societies where it is present. In response to Covid-19, the company says it has instituted many measures to protect their health and well-being of its employees. This includes:

- All plants and offices are adhering to all local and international safety guidelines.
- Instituted work from home wherever possible.
- All domestic / international travel has been temporarily suspended since early March.
- Where considered essential to operate, it has modified shift planning and provided infrastructure like masks, sanitisers, disinfectants to promote safe working conditions.
- Protocols and reopening standards are being implemented globally after taking valuable learning lessons from its reopened plants in China and Korea.
- Wherever manufacturing facilities are deemed essential or have opened adhering to local guidelines, it is providing a safe environment, meeting all safety guidelines.

The Tier 1 supplier says it is in close contact with all its customers and is receiving regular updates on plant reopening dates and customer schedules. At present, it does not see any change in contracts or programs, and most of its customers are looking to catch up on the lost production time in the coming months due to pent up in demand.

Demand returning to MSSL's plants in China
Motherson Sumi says it is seeing positive development on demand coming from its China plants, which were first to shutdown (on the back of Covid-19 impact) but have since recovered production levels to nearly pre-Covid-19 times soon after starting.

On the other hand, most of Motherson’s plants in India, Europe and the Americas are at present temporarily closed, but the company has received positive reopening dates for the majority of the plants by end of April / early May. The company has also created multiple internal task forces to monitor the situation on a daily basis across all plants. It says it is in constant touch with various government organisations, customers, suppliers and employees to ensure for getting the latest updates and are ready to commence production in alignment with its customers. However, since it is a dynamic situation, there could be further delays in reopening plants in case the local governments extend lockdowns, of which there are no current clear indications.

Commenting on the present situation, Vivek Chaand Sehgal, chairman, Motherson said: “Our team has done a phenomenal job in almost doubling MSSL’s turnover over the last 5 years to $9.6 billion (Rs 63,000 crore) on an unaudited basis. Our aspirational 5-year plans cannot be timed perfectly, and the unprecedented Covid-19 situation has hindered us in closing many target acquisitions. However, we believe that these same opportunities have become more attractive in valuations since the Covid crisis." 

"Secondly, with our strong financial position and with customer faith intact, we are also being asked by many of our customers to look at more specific companies which are in trouble and we believe can be acquired at low valuations. We wanted to showcase our plans to the investors in June but keeping in mind the current environment, we will probably do so in October. We are grateful to all the customers, government bodies and our financing partners for their support in these trying times.”

Looking to improve liquidity
Motherson Sumi says that keeping in perspective the changing environment since the onset of Covid-19 in China, it had instituted many projects globally, aimed at cost rationalisation, controlling non-critical business investments and optimising working capital to conserve and generate cash flows.

Motherson says it is actively working with various governments to further reduce fixed costs during this period of non-production. It has already completed its growth capex investments in the last financial year and since its customer orders are intact, it believes group companies will generate significant free cash flows in coming years. Furthermore, its future capex is aligned with the launch schedule of OEMs and will only get reduced / deferred if there are any changes in customer launches.

The Tier 1 supplier says it is monetising engineering working capital by actively working with customers. And is working closely with them for realisation of receivables as well as with supply chain for smooth continuity of operations as lockdown restrictions are removed. It is working towards ensuring upkeep and maintenance of facilities during the lockdown period. As a result of these measures, Motherson reports that as of March 31, 2020 its net debt levels have been the lowest in 11 quarters.

Lastly, to further enhance liquidity in these uncertain times, Motherson’s Board of Directors have accorded in-principle approval to raise up to Rs 1,000 crore and delegated its Committee of Directors to evaluate and decide on various borrowing proposals. It is also proactively working to leverage various government support schemes to enhance liquidity.

Motherson has operations in 41 countries and 270 manufacturing facilities across North America, South America, Europe, South Africa, Middle East, Asia Pacific and Australia.