JOIN USMotherson Sumi Systems (MSSL), one of the country’s largest auto component manufacturers, has set an ambitious target of trebling its consolidated revenues to around $18 billion over the next five years.
In a recently held investor meet, the management of MSSL indicated that the company is aiming to treble its consolidated revenues to around $18 billion by FY20, with two-thirds of the incremental revenue coming from organic growth, and the rest through the inorganic route.
The management also indicated that MSSL is focused towards reaching the 40 per cent consolidated return on capital employed (ROCE), from 26 per cent currently, through a combination of leaner manufacturing practices and improved margins. Motherson Sumi had recorded revenues of $5.5 billion in FY15.
As far as acquisitions are concerned, the company is very particular that it is not looking at overpaying for acquisitions. Mergers and acquisitions (M&A) opportunities will be driven by original equipment manufacturers (OEMs) as and when they ask for takeover of a troubled operation and MSS is not in the market for multiple bidding and hence the question of overpaying does not arise, the management indicated analysts.
Kotak Institutional Equities Research believes that the target set by MSSL is much below street expectations. “Of the $18-billion revenue, the company expects 35 per cent to come from acquisitions and the rest from organic growth. This implies an organic revenue growth of 16 per cent CAGR over the next five years, which is much below Street expectations,” Kotak Institutional Equities Research said in a note.
The management of MSS also indicated that it is looking at changing how it reaches out to newer geographies, including the Americas. Europe currently constitutes 60-70 per cent of the revenues for the company, while revenue mix from the Americas currently stands at around 12-14 per cent.
The US passenger car market currently stands at around 18-million per annum, and the company sees a huge potential for it in the wiring harness business due to which it believes that the acquisition of Stoneridge is a step in the right direction.
Motherson Sumi had completed a deal worth over $65 million in August 2014 to acquire US-based Stoneridge’s wiring harness business. The management also said that it is looking to limit exposure to a single country, customer, and component, to a maximum of 15 per cent of overall revenues.