Motherson Sumi: Master of acquisitions
Albeit minuscule when compared with its 1.4 billion Peguform purchase, Motherson Sumi is confident the 36 million Scherer and Trier buy will soon add to consolidated profit
The share price of Motherson Sumi Systems Ltd rose sharply after Monday’s announcement of a strategic acquisition of a European auto part maker, Scherer and Trier, for €36 million.
Albeit minuscule when compared with its earlier gigantic acquisitions such as the €1.4 billion Peguform purchase, the management is confident that it will soon add to Motherson Sumi’s consolidated profit. Although it is not currently profitable, analysts are not worried as the group has a proven track record of growth through acquisitions and, more importantly, of turning around loss-making firms.
Even during the September quarter, improving profit margin in two of its main overseas subsidiaries helped offset a marginal dip in the domestic entity’s profit margin. Samvardhana Motherson Peguform and Samvardhana Motherson Reflectec clocked operating margins in high single digits. Both subsidiaries were not profitable when Motherson Sumi acquired them several years ago. But, after the acquisition, they bettered their performance through global recessionary years.
Scherer and Trier’s acquisition is expected to widen Motherson Sumi’s geographical reach and product portfolio. An earlier report by Emkay Global Financial Services Ltd says 85% of the company’s consolidated revenue comes from Europe and India.
However, these two regions account for only a quarter of the world car market.
The present Scherer and Trier acquisition includes facilities in Germany and Mexico. This, along with its recent Stoneridge acquisition, will help it quickly tap newer regions and US markets, which has been the company’s intention.
Further, Motherson Sumi’s growth is aimed at trying to increase its content-per-car strategy and encompass a greater percentage of components supplied to original equipment manufacturers. This implies higher value addition, which, in turn, could churn out better profits through margin expansion.
Focused growth over the years has seen the stock appreciate through difficult times even in overseas markets. At ₹ 434 apiece, Motherson Sumi’s shares have more than doubled from a year ago and trade at rich valuations, compared with its peers in the auto component universe.
The writer does not have any positions in the companies mentioned here.
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