A lot of confusion is prevalent in the automotive sector and its improvement will improve things dramatically, says Vivek Chaand Sehgal, chairman, Motherson Sumi Systems Ltd. In an interview with Swati Khandelwal, Sehgal said the company's two plants Kecskemet and Tuscaloosa are stuck in the trade war, but things will improve in the next one-two quarters.
Revenues of Motherson Sumi Systems have gone up 12.8%, but the net profit has come down 25% and margins have fallen 2.1%. What could be the reason for this fall?
Several things are linked to it and the major reasons include certain businesses are down and there is a slowdown at a global level. Apart from this, we are also facing ramp-up cost challenges at two of our plants based in Tuscaloosa in the US and Kecskemet in Hungary. The second thing is that these plants have not reached 100% mark yet. So the impact of all these things is visible at present but the good news is that our revenues are up. In our domestic businesses, even though there is a decline in turnover, the margins, and every other thing has been maintained. So I think weaknesses are seen in one-two places. Globally, however, there is a lot of confusion in the automotive sector and everything will improve dramatically as soon as things settle down.
The cost of new plants at Samvardhana Motherson Peguform (SMP) has had an impact on your profitability in this quarter. By when you will be able to absorb this cost?
As far as SMP is concerned, you will have to understand the start of two plants, Kecskemet in Hungary and Tuscaloosa in Alabama, the US, have been stuck due to the trade war. We see improvement every month and that's why we believe that we will have to have to bear slight pain for the next one-two quarters the most. But overall, the company has enough profitability to sustain it. I think you will be able to see a huge turnaround as soon as things improve in next one-two quarters. It will get a good response as we monitor it every month, and it is improving slowly but steadily.
What are your plans to reduce your debt levels that have risen marginally?
Our net debt stands around Rs 8,300 crore and it has increased by around Rs 300 crore from Rs 8,000 crore due to foreign exchange and others. So it can be counted as a translation in terms of dollar and euro as the rupee has weakened.
What are your expectations about domestic demand as the festive season is approaching?
We don't second-guess our customers, and if the customer says that you are supposed to do this then we go for it. We don't look towards the movement of the market, that is this vehicle be sold more and that be not. Rather, we have increased our inventories, because we believe that the market would pick up, and whenever it comes back we should be absolutely ready to take care of that.
What is your long-term growth strategy this fiscal and what is the capital expenditure for it?
We have completed greenfield projects under a five-year plan. We are not coming with anything substantial. When it comes to acquisitions than the declining valuation at the global level is making customers nervous. There are companies which are available below the expected price, and this means that you are gaining at one end but losing at the other.
