Things will turnaround in a quarter or two: Vivek Chaand Sehgal, Motherson

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 Limited. In an interview with Swati Khandelwal, Zee Business, Mr Sehgal said start-up of two plants Kecskemet and Tuscaloosa are stuck in the trade war, but things will improve in next 1-2 quarters. Edited Excerpts:

Q: Revenues of Motherson Sumi Systems has gone up by 12.8%, but PAT has come down by 25% and margins have fallen by 2.1%. What could be the reason for this fall?
A: Several things are linked to it and the major reasons include (i) market is down in certain businesses and (ii) slow down at a global level. Apart from this, we are also facing ramp-up cost challenges on 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 and is more than 35% in SMP and 10% more in PKC and is performing well. Similarly, MWSI has also performed well. Our domestic businesses, even though there is a decline in turnover but still the margins and every other thing has been maintained to whatsoever we could. So, I think weaknesses are seen in one-two places. Globally, however, a lot of confusion is present in the automotive sector and everything will improve dramatically as soon as things will settle down.

Q: Cost of new plants at SMP has had an impact on your profitability in this quarter. By when you will be able to observe this cost?
A: As far as SMP is concerned, you will have to understand the fact that the start-up of two plants, namely Kecskemet in Hungary and Tuscaloosa in Alabama, the US, has stuck under a trade war. So, we are seeing that improvement every month that is coming in there 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 are monitoring it every month that slowly but steadily it is improving.

Q: What are your plans to reduce your debt levels that have risen marginally?
A: Our net debt stands around Rs8,300 crore and it has increased by around Rs300 crore from Rs8,000 crore due to foreign exchange and others. So, it can be counted as a translation in terms of Dollar and Euro as Rupee has weakened.

Q: What are your expectations from domestic demand as the festive session is approaching?
A: See, we don’t give a second guess to 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, i.e. this vehicle will be sold more and that will not. Rather, we have increased our inventories because we believe that it, the market, pick up and whensoever it comes back, we should be absolutely ready to take care of that. But if it is not there then let it as we can’t change it neither we are trying to control it.

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Q: What are your greenfield projects and long-term growth strategy going forward in FY20 and what is the CapEx for it?
A: We have completed on the greenfield projects for this 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, who are asking us to look at themselves. There are companies who are available below the expected price and this means that you are gaining at one end but loosing at the other. Thus, we are profitable here.