Having done 15 acquisitions in 12 months, Samvardhana Motherson International (SAMIL), India’s largest automotive component manufacturer, is readying itself for more buyouts which could be larger than the ones it has already done.
The reason: Vehicle manufacturing companies that SAMIL caters to are nudging the Indian behemoth to acquire companies for assured supplies of auto parts in tune with their market expansion efforts.
The upcoming buyouts will be in line with Motherson’s efforts to hit the revenue target of $36 billion by 2025 coupled with a return on capital employed (ROCE) of 40%.
Speaking to analysts, Laksh Vaaman Sehgal, Director, SAMIL said, “We have patiently waited for the last four years for this moment where the customer is asking us to go and do these acquisitions when interest rates are extremely low, and a lot of deals are happening. We were patiently waiting and deleveraging.”
At the customers’ behest, SAMIL added 22 facilities in Europe and 7,000 people with the recently closed acquisitions. Given this footprint expansion, it also announced a phased reconfiguration in a few countries in Europe to streamline operations, improve efficiencies, and deliver more synergies.
The company has a booked business of more than $77 billion, up from 69 billion as reported in March 2023.
Motherson is revising its full-year capital expenditure (capex) guidance by 50% to about Rs 4,500 crore from Rs 3,000 crore, to support the capacity expansion initiatives of several of its OEM partners who are putting up new capacities.
This growth is coming out of emerging markets such as India and China where SAMIL is building 11 greenfield and brownfield plants. These new facilities will come on stream this year and the next year. This includes capacities for both automotive and non-automotive businesses.
SAMIL has been working on its deleveraging path to pave the way for large ticket acquisitions. Its net debt to EBITDA stood at 1.9, which was within its stated financial policy of 2.5.
“When the time comes, there will be an opportunity for us to make really large acquisitions and increase our footprint in the customers’ portfolios; and that is what exactly is playing out,” Sehgal added. In October, SAMIL incorporated an entity in the US for the purpose of acquiring, investing and holding movable and immovable assets of the group.
As per SAMIL’s September quarter disclosures, its net debt zoomed by Rs 5,100 crore to a total of Rs 13,416 crore led by about Rs 3,800 crore for acquisition payouts closed during the quarter, higher capex to support growth and dividend paid. The company had cash reserves of around Rs 5,800 crore by the end of the September quarter.
In July SAMIL signed to acquire Germany-based Dr Schneider Group, a manufacturer of air vent systems, cover and trim parts, fuel modules, for Rs 1,073 crore. In February the company announced the acquisition of auto cockpit modules maker SAS Autosystemtechnik, for Rs 4,790 crore. Also in July, it announced buying 81% stake in Honda Motor’s component making subsidiary Yachiyo for Rs 1,059 crore.
“SAMIL has announced 15 acquisitions in the past year and these are expected to add around $2.6 billion to revenue (on net basis). The business environment continues to offer several opportunities for further acquisitions,” said a note from Emkay Global Financial Services.