GN Gauba, chief financial officer, Motherson Sumi Systems says Volkswagen controversy will not impact Motherson Sumi business and the company is not going to change its guidance for 2020.
Volkswagen has admitted to cheating diesel emissions tests in the United States, sending shares in Europe’s largest carmaker down more than a third in value and sparking the biggest business crisis in its 78-year history. The Volkswagen controversy has also affected Motherson Sumi Systems (MSSL) shares on domestic bourses. GN Gauba, chief financial officer, Motherson Sumi Systems talks to Financial Express Online and says Volkswagen controversy will not impact auto ancillary firm’s business. Below are excerpts from the interview:
Q. How Volkswagen issue can impact Motherson Sumi business in the ongoing financial year?
A. We do not see having much impact of Volkswagen on Motherson Sumi and we are not going to change our guidance for 2020. The main products that we supply to Volkswagen Group are mirrors, door trims, bumpers and dashboards. We do not supply engine related parts and our products don’t change with engine type. At present, the business is as usual in Europe as the present manufacturing is with Euro 6 compliant engines. The automotive business in recent past has witnessed volatility and our business units have always handled these volatilities successfully. This is demonstrated through our results.
Q. How China slowdown and its currency devaluation can impact Motherson revenue in coming years?
A. We are naturally hedged in most of the geographies. We supply our products to the carmakers locally including in China, hence currency devaluation does not have a significant impact on our operations. As we had disclosed earlier, we are setting up new plants to support new platform businesses which are expected to give us further growth in the medium term.
Q. As the rupee has depreciated over 5 per cent since the beginning of the ongoing calendar year. In this case, what is your hedging strategy?
A. MSSL has focused on ‘Make In India’ for a long time and we have done in-depth vertical integration to avoid exposure to currency risks. By investing in the supply chain MSSL has been able to build global quality within India and provide excellent flexibility to its customers. For specific nominated imports we generally have a pass through with our customers.
Q. How have the European markets been last year? How do you see sales from Europe this year?
A. We have been receiving new platform orders from our customers since the acquisition of Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Pegufor (SMP). This has resulted in robust and consistent growth in the business in Europe. In Q1 FY15-16 SMR (automotive mirrors) grew by 24 per cent while SMP (Bumpers, Door trims, dashboards etc.) grew by 25 per cent on an overall basis.
Q. How the balance sheet and income statements of Motherson Sumi grew in the past 5 years? How do you see profit and revenue growth of MSSL in the next 2-3 years?
A. We have grown at a CAGR of 43 per cent since 1999-2000. We have strong cash flows and have consistently paid dividends (last year 37 per cent of consolidated profit was paid as dividend). As on March 31, 2015, our consolidated net debt stood at Rs 32,405 million is just equal to our one year operating profit. Most of the debt is also naturally hedged as it is taken by Samvardhana Motherson Automotive Systems Group BV(SMRP BV) (without recourse to the parent) as 7 year and 10 year maturity Euro bonds.
We have given a guidance for 2020 and we see a growth going from Rs 600 crore to Rs 1,800 crore and our focus is on return on capital employed. We see revenue of the company growing at CAGR of 24-25 per cent in the next 5 years.
SMRPBV is a Samvardhana Motherson Group Company. SMRP BV is joint venture between MSSL and Samvardhana Motherson International Ltd (SMIL).
Q.What is your take on Indian auto market? Do you think auto sales will rise from here onwards?
A. We are a firm believer in the bright future of the Indian auto industry.
Q. What are the new orders in the domestic and global markets?
A. We have already announced new global orders worth over Euro 4.2 billion received during the financial year 2014-15 (including orders worth Euro 2.2 billion received from Daimler) at SMRP BV. We provide order updates every six months.
Q. Are you sole suppliers to any of the customers in India? Who are your biggest clients and how much they contribute in your topline?
A. We supply huge variety and category of components to the customers. We do supply many of such parts as single source to the customers.
Q. Motherson Sumi have been paying 40 per cent of its profit as dividend for the past 20 years. How do you see the continuity from here onwards?
A. Our policy for 40 per cent dividend payout will stay. We generate huge amount of cash so we have to balance between the debt and cash flows.
Q. What are the company’s expansion plans?
A. The company has planned to set up around 20 new facilities across the globe in the next few financial years. Some of the plants have already been started. We are also planning to set up new plants in Noida (UP), Walajabad (Chennai), US, China, Germany Hungry, Spain and South Korea.