Motherson’s Kunal Malani sees Schneider business being ROCE accretive from next year

Auto components maker Samvardhana Motherson International Ltd on Monday said it will acquire assets and shares of Germany’s Dr Schneider Group entities at an overall enterprise value of about 118.3 million euros (over Rs 1,070 crore). Kunal Malani, CFO, Motherson Group explains the rationale for the acquisition and expected synergies.

Dr Schneider Group is your second biggest acquisition in a month’s time. Can you walk us through the rationale behind this and what does Schneider add to your portfolio?
Firstly, this is another acquisition that highlights the trust that customers have on us. This, as you know, is an asset not doing too well. It has gone through its administration route right now. It is actually a loss-making asset as it stands and the customer picked us again to consider us as the solution which can make this asset profitable going forward. The customer is backing us on a variety of different forms on this, both from being able to give us support on the pricing front as well as on future restructuring that this asset may need to undertake. So, we do expect that this would be a profitable business going forward. It should be EPS accretive going forward and it should certainly be even ROCE accretive from next year onwards.

When do you see the business becoming profitable and EPS accretive?
Oh, at the point of acquisition itself, we have worked with the customers to get the support from the start of the acquisition, from the closing of the acquisition. And hence, it should be EPS accretive from day one itself. Obviously, there is a lot of hard work to be done to make sure the operations are stable, to make sure that the material reaches the customer’s end at time. So, a lot of operational stuff to be done. But with the support of the customer, this should be a profitable business from day one.

It is profitable from day one but the total enterprise value of this business is pegged at 118 million euros. Could you break it down for us in terms of how much debt would you be undertaking and overall with respect to funding of this acquisition, what is the plan?
The enterprise value is 118 million odd euros, out of which the equity check is expected to be somewhere between 70 to 80 million euros. The rest is 20 million of financial debt is the maximum that we see; it could possibly be a lower number. As for the rest, there is a fair amount of adjustments to be had on account of either debt like items or some employee liabilities and so on. Hence an actual payout of not over 70 to 80 million is the way we see it.

You did hint about various synergies that will come. Any more client additions that will become easier on account of this acquisition and what are the cross-selling opportunities?
New customers, no. These are all existing customers. As I said, this has all been supported by the customer and hence we do not expect anything incremental to come from the new customer base per se. What it does do is add a completely new product portfolio for what it does. It carries with it some 200 patents, 250 odd engineers which are focussed on developing these innovative parts. These are good decorative parts or aesthetic parts that are going into high-end vehicles and hence it, again, cements our positioning in the premium end of the market. It is also currently focussed more on the European side.

Within our fold, it obviously can access markets across the globe and with its technologies and IPs that it carries, we should be able to penetrate many other parts of the world under the Motherson portfolio. In addition, the customers have supported us. We do see them being able to support us in other parts of the globe as well and hence we should be able to grow this business going forward.

Post the recently announced acquisitions, where could the company’s debt level stand and how many more such acquisitions do you think are in the works or under consideration?
The total acquisition pie so far would be somewhere in the 500 million euros. It may carry with it its own set of profitability pieces to it and hence, at an overall level, while the absolute debt will go up, the leverage ratio or the net debt to EBITDA should largely be give or take less than 2x hopefully by the end of the year, closer to where we are at the beginning of the year.The global light vehicles, the analysed selling rate as we understand, rose to about 89 million units per year in the month of May, posting a consistent month-on-month improvement as well. Has this number been improving? What is your observation?
We remain positive on the industry, not only from volume front but also from premiumisation front. On the volume front, in spite of all the recessionary headwinds in the developed world, the market still remains 15-20% below pre-Covid levels and that implies there is a base that exists below which it is unlikely to go. The downside seems limited, upside potential seems higher and hence we expect the growth to continue, maybe at a slower pace but we do expect growth to continue on the volume front as well.

Last four years were rather tough for Motherson Sumi or SAMIL as we call it now, but we have started to see signs of improvement. Analysts are now expecting that the EBITDA could perhaps double and EPS could triple by FY26. Are realistic numbers and expectations?
I cannot really talk about forward-looking aspects, but as we have said in the previous quarter as well, the worst seems to be behind us. Some of the new normals in this environment are priced in now and hence as things become more stable, as supply chain becomes more stable, some of the working capital expanded situations will start normalising as well. Some of the acquisitions will start playing out over the next two odd years. So, all in all, we are looking forward to a journey to 36 and in that journey, obviously the existing house has to be delivered in order to meet that journey. We remain geared up towards getting it done and towards the 40% ROC, which is our target by 2025.

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