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The current geo-political instability triggered by the Russian invasion of Ukraine is an opportunity for firms like Motherson Sumi to acquire companies that are in distress, said Vivek Chaand Sehgal, chairman, Motherson Sumi Wiring (MSWL) said during a media interaction in Mumbai.
Sehgal was in the city for the listing of the company’s equity shares on the BSE and NSE. The company was formed when the domestic wiring harness business was demerged from Motherson Sumi Systems Ltd (MSSL). The demerger came into effect from January 5, 2022.
The $10-billion Motherson Sumi group, which has acquired 27 companies in the last two decades, is gearing up to acquire several more in the coming months. All the past acquisitions have been driven by the automakers it counts as its customers, he said.
“The customers are asking us to buy out companies more and more. When we have customers standing behind us, success is by and large easier,” said Sehgal pointing out the customer backed acquisitions to be the key reason behind the success of the group’s inorganic growth strategy. Lot of companies have tried their hands at acquisition but have miserably failed. But Motherson has done it year after year amid the worst crisis facing the world and emerged successful, he said.
“There will be a lot of acquisitions as the pain in the system is too much,” said Sehgal, steering clear of giving a definitive answer on the number of buyouts, the target company’s country of origin or segments in which the company is looking for a buyout.
Commenting on the impact of the current geopolitical instability and its impact on the company’s Vision 2025, he said the plans are on track and the envisaged targets will be met. On whether the company’s high debts worried him, he said, “We are in a position to be debt free but we don’t want to be.”. An indication that the cost of borrowing in India at 18 per cent is much higher than the cost of debt on equity—which is 1 to 2 per cent. Therefore the company would rather have some debt on its balance sheet. Moreover, in proportion to the company’s top line, the debt is negligible.
MSSL raised Rs 1,000 crore through issues of non-convertible debentures during the third quarter of FY22. This would be utilised for funding working capital requirements and debt repayment. The company’s consolidated net debt increased from Rs 7,600 crore in September 2021 to Rs 8,700 crore in December 2021 driven by higher working capital and reorganization scheme.
While the current headwinds facing the auto industry globally including persistent inflationary trend in the commodity prices, supply chain disruption does mount pressure on the operations for a firm that has presence in 41 countries and has 285 plants, a strong relationship with the customers has helped the group to weather the storm. The company has two plants in Russia. While the operations of the first one that address the local market is continuing, the company is in the process of winding up the operations of the second one that supplies to European customers.
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