Motherson Sumi eyes new acquisitions, JVs to achieve $18 billion revenue target

Friday, May 15, 2015

Motherson Sumi Systems , India's largest auto parts maker, is doing due diligence on three auto component makers in Europe for possible acquisitions, its chairman Vivek Chaand Sehgal said, as his company aims to achieve a three-fold increase in revenues to $18 billion by 2020.

Early this week, Motherson Sumi had set a revenue target of $18 billion by 2020, from $5.5 billion now. The company hopes to achieve 65% of its revenues through existing businesses and the rest through the acquisition route, Sehgal told ET.

He added that the deals are in the works and there's a chance that they may not materialise. "We are also in talks with a German company and a US firm for joint venture as they are looking to enter the Indian market," he said.

Motherson Sumi Systems (MSSL) is eyeing both the organic and inorganic routes to achieve this target, which it had revealed in its latest five-year plan earlier this week.

The Indian multinational will invest about Rs 6,000 crore in the next five years to achieve its organic growth target. The company aims to earn $12 billion by value from organic source, while the rest $6 billion from inorganic.

MSSL had always set itself stiff targets and achieved them as well. In the previous five-year plan, the company sought to achieve $1 billion in revenues in 2010 from about Rs 1029 crore ($200 million) in 2005, and ended up achieving $1.5 billion.

This time too, Motherson Sumi has been able to better its revenue target of $5 billion set in the last five-year plan by $500 million. The company made five acquisitions in the last five-year plan worth about Rs 1803 crore. MSSL has got orders worth Rs 28,000 crore (4.2 billion euros) in the full financial year 2014-15 and the supply will start from later this year.

The auto component maker has informed during the results announcement that it has also been able to achieve the highest return on capital employed (ROCE) of 40% for the financial year 2014-15. It has set a similar ROCE target for the next five years.

Sehgal expects contribution from the US and NAFTA countries to grow as it sets up new plants and looks at inorganic expansion. "The big change is going to happen in USA-NAFTA, which today constitutes about 12-14% of our total revenue, which will increase to about 25-30%," Sehgal said.

In the initial first one or two years, the company expect contribution from India to the total turnover may come down to10 percent from current 16 percent.

While in the latter years, Sehgal expects revenue contribution from India to increase as production of cars are rising in the country. "India is a very important market for us but percentage-wise it might look small," said Sehgal who resides in Australia.

Sehgal also revealed that the $18 billion revenue target by 2020 is attainable. His company is "inundated" with offers, which are either acquisitions or offers for joint ventures as the Indian market looks more attractive than before, he said.

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