A zeal for deals

A zeal for deals

Vivek Chaand Sehgal, chairman, Motherson Sumi Systems, has crafted an empire solely through global strategic acquisitions and joint ventures.

By Jayashree Kini-Mendes

It is said that success is best measured in numbers. If that is true, then Motherson Sumi Systems comes up easily as a chart-topper. Few companies can boast of such a massive footprint across the world gained mainly through rapid expansions within the country, and significantly through successful global acquisitions and joint ventures. Since 2000, Vivek Chaand Sehgal, chairman, Samvardhana Motherson Group (the flagship company is Motherson Sumi Systems), has acquired 19 companies globally and has 24 joint venture partners — most of them in auto components.

Letting us in on what acquisitions means to him, Sehgal says, “Our vision is to be a globally preferred solutions provider. This means creating more solutions per vehicle, for more customers at more locations around the world. More often than not, indications come from our customers who want us to do the deals.”

Overseas buyouts and JVs offer companies economies of scale, help with the overheads of R&D, and acquire greater volume in sales. Large M&As and global JVs are also a sign of bosses daring to be bold. From Toyota to Volkswagen to Honda, the group works with 13-14 top automakers across regions. Overall, the Group’s business is spread across 75 countries with 230 facilities across 37 countries, of which 105 are based out of India and 125 overseas.

First among equals
For a capex-heavy, old-world industry where buyouts have often proved a maelstrom, MSSL has mastered the art of making them work. Sehgal’s is based on the principle of creating value for customers and gaining their trust. This requires consistent outstanding performance and a broad product portfolio, continuously upgraded through technical and process innovations. At a time when corporates give out short-term targets, 61-year old Sehgal offers 5 year plans and meeting targets to gain the trust of stakeholders, and create history.

It has been this way since he began his journey in the world of business when he tried his hand at silver trading when he was 18. In 1975, he, along with his mother, established Motherson with a capital of Rs 1,000 and in 1977 set up his first plant to manufacture power cables. Sehgal says, “In 1983, we entered into a technical agreement with Tokai Electric Company (now Sumitomo Wiring Systems – SWS) to manufacture wiring harnesses for Maruti Udyog. Three years later, we formed our first JV with SWS and established Motherson Sumi Systems, and since then there has been no looking back.”

Over the years, MSSL created processes and strategies and what has constantly remained with them is a relentless focus on “QCDDMSES” (Quality, Cost, Design & Development, Delivery, Management, Safety, Environment and Sustainability). At a time when there are shining examples of under-promise and over-deliver, Sehgal has understood that every acquisition is tied to revenue and should offer a value proposition to stakeholders. Perhaps, it is this reason that helped MSSL exceed the $5 billion sales targets in 2014-15 and post an increase of 15% in registered revenues for FY2017 of Rs 41,985 crore ($6.5 billion). The company’s PBT grew by 39% to Rs 2,997 crore in 2017 from Rs 2,155 crore in 2016. In India alone, the company’s revenues grew by 20%, while overseas revenues grew by 14%.

MSSL’s tremendous appetite for acquisitions was an innate need to supply superior products to its clients. Sehgal says, “There is no single recipe for success. Each acquisition has its unique set of issues which needs to be addressed. We go to the unit level of the acquired entity and solve problems at that level. We acquire companies to turn them around and run them locally in those geographies with local people who understand it well.”

Although there have been several acquisitions, the first big one was the rear view mirror business from Visiocorp Plc., UK, in March 2009. Sehgal adds, “It was the peak of the Lehman crisis and recession was at its worst. Visiocorp was the size of our entire group. The company acquired was in administration and in dire straits for years. Maintaining the same infrastructure and people, we turned it around in less than a year. The acquisition also made us one of the largest manufacturers of rear view mirrors in the world. Similarly, the acquisition of Peguform GmbH in 2011 provided us with new technologies and a strong customer base, especially in Europe.” It thus became a leading supplier of higher level modules – bumper, front end modules, IPs/dash boards and door trims – in Europe.

Making the earth move
SMG’s business portfolio encompasses multiple areas of the automotive value-chain as well as non-automotive (see box: Business Profile). The Group has vertically integrated its business into wiring harnesses, rear view mirrors, plastic moulding, tooling, elastomer processing, modules & systems, IT services, engineering & design, and metal working. For instance, the wiring harness business manufactures wiring harnesses, high tension cords, battery cables and high-level assemblies. The Group has not confined itself to mere manufacturing. It provides complete solutions including design from basic vehicle schematic, development, prototyping, validation and manufacturing of wiring harnesses for passenger cars, CVs, 2- & 3-wheelers, farm & material handling equipment and off-road vehicles. Specialised wiring harnesses are also made for white goods, office automation equipment, medical and other electrical and electronic equipment. This vertical integration enables MSSL to provide quality products with reduced time to market. The capability of designing supported by state-of-the-art facilities makes the company a full systems solutions provider. Facilities have also been established in close proximity to global customers and are spread across 37 countries including India, Mexico, Brazil, Sri Lanka, UAE, Thailand, USA, UK, Japan, Italy, Germany, China, and Korea. Sehgal says, “One of the reasons for acquisitions is that it has enabled us to acquire technology, research base, product expertise and has provided a ready customer base of leading automobile manufacturers of the world.”

The gusto comes in after SMG realised the potential manufacturing offers after gaining global partners. Sehgal adds, “The products we manufacture are not shoot and ship parts. They are highly engineered, made to specifications. We work with customers from the designing stage itself.”

Different verticals have different manufacturing processes. Overall, SMG has settled on a Kaizen culture that allows continuous improvement on the machines they have and the processes they follow. “We have patented processes. We create processes and modify existing ones based on requirements. Our achievements are the results of our 24 R&D centres worldwide, which has gained us 900-plus patents,” he adds. Auto parts makers are privy to future launches their OEMs are planning and need to be ready with products.

Every vertical of Motherson has its own R&D centre. The more diversified the Group gets, the more synergies it has between the individual business areas. For example, displays of camera systems developed by SMR can be integrated into cockpits produced by SMP — both are companies of SMG. It also has a special wing, Motherson Innovations, which focuses on present and future technologies.

Keeping its aggressive stance on capacity expansions, last quarter the company announced that it has earmarked Rs 2,000 crore capex for the current fiscal to set up 10 more manufacturing plants (3 green field and 7 brown field), of which three would be in India. Sehgal says, “Plants are set up to meet the requirements of the orders placed. We move quickly when it comes to setting up plants to cater to present and future requirements and support these requirements in time across the globe.” The group’s plans for future growth are even more audacious. Sehgal’s gamble is to touch $18 billion turnover for MSSL by 2020 and he knows that this can only come through increasing manufacturing and customer base and organic growth.

There is also that part where MSSL needed to further develop the strategic direction they had set for themselves. This required understanding industry trends and their relevance to MSSL, as well as the risks and opportunities they create for the Group. It is for this reason that SMG decided that it would manufacture locally to meet the requirements of Indian customers. “We started with India and it continues to be an important manufacturing base for us. We are also known for our indigenisation. Whenever our customers here require a new product or technology that is available in our global portfolio, we bring them to India. We have formed JVs globally for this purpose, adds Sehgal.

Developing on expertise to be a strong solutions provider has been a watchword for the company. As one of the largest suppliers of moulded parts, assemblies & modules, SMG has developed expertise in amalgamation of different technologies covering diverse customer needs that includes painting, special surface finishes, soft-touch and slush moulding, leather finishes and a host of specialised post-moulding & assembly processes along with polymer compounding. It has set up special facilities for resin moulded parts and has a number of process patents for the special moulding process. The polymer vertical has over 55 manufacturing facilities and it supplies to the entire cross section of industry from premium-high end vehicles to low-end mass segment vehicles.

Considering its large operations, SMG has an end-to-end IT enablement through its own IT company that caters to the Group’s requirements. “We have ERPs that helps us with integrated applications to automate back office functions right from inventory receipt to delivery to customers,” says Sehgal.

Across the multitude of products it makes, SMG has worked out a spick procurement policy. “Independent divisions do their own procurement in their respective geographies. For global requirements of common commodities, we have global purchasing functions supported by logistics centres. “Global customers prefer vendors focussed on QCDDMSES, and are ready for innovation when required and can support them in different geographies. In many cases we replicate the suppliers approved by customers. Vendors are evaluated on the parameters of QCDDMSES,” says Sehgal.

In order to balance production and supply chain, SMG has a stated policy of 3CX15 which means no individual customer, country or component should be more than 15% of the turnover. This allows them to de-risk the business. With nearly 85% of business coming from overseas, SMG has pursued growth in geographies where markets are growing. The ability to develop products and solutions and in the process increase content per vehicle has aided in the growth.

Sehgal has also found a solution to deal with fluctuating prices of raw materials. It has mechanisms in place to gauge when commodities fluctuate beyond certain levels and only then pass it on to the customers.
The end result: Sehgal has shown a remarkable spirit of gumption spun around his unswerving
focus on the automotive business, and his prodigious talent to balance partnerships with the world’s
largest carmakers.

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