After buying Reydel Automotive Group and MS Global India Pvt. Ltd, auto components major, Motherson Sumi Group, on Wednesday said the company is looking for acquisitions.
Speaking to CNBC-TV18, Vivek Chaand Sehgal, chairman, said all the three plants will come to full capacity somewhere around 2018 end or 2019.
Watch: Strong demand coming up but acquisitions will impact the topline, says Motherson Sumi
Sehgal said Samvardhana Motherson Peguform will add approximately $1 billion to the top line by 2019-2020.
Edited Excerpts: Tell us a little bit about the greenfield expansion plans, how much will come on stream this year and next there is one in Hungary as well?
I think three plants that are in question, which are the new greenfield sites, are very exciting for Samvardhana Motherson Peguform (SMP), because by 2019-2020, they will add approximately $1 billion to the top line. All these particular small ups and downs that we are seeing in the margins and in the return on capital employed (ROCE) of SMP, are probably going to be all wiped out and we have a good six-seven year bull run on these plants. The good news is that this seems to be the last plant for our order book of $17.2 billion, which we have to set up, so that the start-ups of new plants and all that would not be there unless we have new orders which we hope we do.
So for these new plants, will the initial costs be higher as they start up and stabilise, is that the case and then if that is then what about margins?
Well, I don't see margin pressure because these particular things are all inbuilt into the system. But yes, whatever are the start-up costs have already been written off in our profit and loss account. But we just give it as an indication to the investors and the analysts, so that they understand that these are things which are not recurring.
We are very happy not to give all these things and just give you the straight plain vanilla numbers. But I think, it makes you understand that car startup is not really one day. So, we are not making something like cement or something. Every car, every colour, every variation has to be tested out and has to be done, so that the cars that you buy coming from our customers are top of the line. So, it takes a bit of time to get the whole plant and everything done. But I think, it is very exciting and we don't hesitate to put up the greenfield plants because it allows us to show the customers what we mean, when we talk about setting up a new plant to service them.
How is the demand situation in Europe and where are you seeing a big pick up?
So, we feel that there is no let off at all. We are getting a lot of traction for demand from our customers. But I think, what is important for you to understand is that Motherson growth story is not about a particular market going up or going down. One acquisition or two acquisitions and the whole percentages have no meaning. So for a Motherson, first, we have a very strong demand coming up all over. Two, I think it's the acquisition that will make much more of an impact onto the top line.
We are at the moment sitting at about $12.50-13 billion, we have got to go to something like close to $18 billion for Motherson Sumi and for the group, we would go higher. So, for us acquisition is going to be the main driver of the whole thing and we have got a huge pipeline of acquisitions that are already there. It is just that we are negotiating, we are talking, we are understanding and then what is right, what is fitting our scheme of things, only that acquisitions we will do. So, it takes a bit of time, but yes, it makes a lot of sense to go this way.
All these plants will come to full capacity somewhere around 2018 end or 2019, may be the first quarter or maybe the second quarter. So, I think the production of Daimler and our customers are also ramping up at the same time. I think, you have read in the papers that a lot of our customers are spending a lot of money into Hungarian operations and this plant is going to be servicing them 100%. So, very excited in the coming 8 to 12 months.
So when will the Hungarian plant come to full capacity, I mean what kind of timelines are we looking at?