New Delhi: On 29 April, Noida-based auto component maker Motherson Sumi Systems Ltd (MSSL) stunned its peers when it announced that it had closed a 15,400 crore deal with Daimler AG to supply a range of parts for future generations of Mercedes-Benz cars, the biggest such deal in India till date.

For MSSL, India’s largest auto component maker, the Daimler deal has been a booster shot—one that will help it beef up its business in North America and more than triple its revenue to $18 billion ( 1.15 trillion) by 2020 from $5.5 billion in end-March 2015.

If this target is met, MSSL will become bigger than some of the car and motorcycle makers in the country, its clients. For example, Maruti Suzuki India Ltd, the largest car maker in the country, had reported revenue of $8 billion for the year ended 31 March, while Hero MotoCorp Ltd, the country’s largest two-wheeler manufacturer, generated revenue of $5 billion.

According to Mumbai-based brokerage Emkay Global Financial Services Ltd’s report of 18 May, the target, if achieved, would make MSSL “an auto component behemoth by 2020".

The man behind MSSL’s ambitious plans is chairman Vivek Chaand Sehgal. Forbes magazine estimates his net worth at $2.7 billion. At 58, the Australian citizen who lives in Dubai and has the majority of his businesses based out of Europe and India, dismisses concerns about the goals being over-ambitious.

To silence the naysayers, Sehgal points to MSSL’s track record: over the past 15 years, it has registered multi-fold growth in revenue from 100 crore in year 2000 to $5.5 billion ( 35,000 crore) currently, repeatedly beating its own five-year targets.

The beginning

Sehgal’s entrepreneurial journey started when he was still in college. His grandfather ran a silver shop in Delhi. It was Sehgal’s job to pick up silver bricks from the bank, take them to the customs department at the airport to conduct purity tests, and deposit the bricks back in the bank. For each brick, he earned a rupee.

That led him in 1975 to set up a company, with his mother, to trade in silver. The company was named Motherson.

“I did not like the name of the company. It sounded like a nappy manufacturer," he recalled, sitting in his sprawling office along the Noida-Greater Noida Expressway. “But today, if you offer (me) a trillion dollars, I won’t sell the name."

At the time, he earned 2,000-3,000 a month. That lasted less than nine months. Silver prices plummeted globally and Sehgal’s primary client, an American company Hunt Brothers, filed for bankruptcy.

Running a business also meant Sehgal was skipping college. In his final year, the college authorities refused to let him sit for the exam, as he didn’t have the minimum required attendance (he graduated a year later).

With the money he made from trading in silver, Sehgal set up a factory to make wires that were used in housing, telephones, cables among others, but it bled.

The firm’s fortunes turned in 1983 when Sehgal was introduced to Maruti Suzuki. That was the year the Japanese automaker set up a joint venture with the Indian government to make cars locally. Next came a joint venture in 1986 with Japanese firm Sumitomo Electric to make wiring harnesses for Maruti Suzuki. It was this venture that helped MSSL enter the business of making auto parts.

The empire

Today, many large automobile companies, including Daimler, Volkswagen, Toyota and Maruti Suzuki, are Sehgal’s clients. The company gets 48% of its revenue from North America and Europe, and 18% from the home market. The Motherson group has 227 firms, which together make about 1,100 auto components, and are held in a complex structure around the parent entity, Samvardhana Motherson.

For instance, a company called Radha Rani Holdings is held by a Mauritian company which, in turn, is controlled by a British Virgin Islands trust whose trustee is a Swiss company whose sole beneficiary is Sehgal. Radha Rani holds 14.1% in Samvardhana Motherson. These details were provided by Samvardhana Motherson in a draft share sale document that it filed with capital markets regulator Securities and Exchange Board of India (Sebi) at least three years ago.

The complex business structure is largely due to the tax laws in countries where Sehgal has his businesses.

“Sometimes when we acquire a company, we also acquire 30-40 of their subsidiaries and the laws there are such that you can’t change them," Sehgal said. “If you merge them, then there will be tax outflow. Why should we pay more taxes?" he said.

As the company ramps up its business, it has also taken on a lot of debt. But because of its complex holding structure, it’s not clear how much debt the parent company has on its books. MSSL says its gross debt is at 5,153 crore but declined to share the debt numbers at parent level.

Some analysts fear the large debt of the parent will pose a problem if the two entities are merged. “I know (the parent company) was loaded with debt. That’s why they wanted to go for an IPO 3-4 years ago," said Joseph George, an analyst at Mumbai-based brokerage IIFL Ltd. “I’ll be bothered if there’s a merger. If that jugglery is happening, then it impacts me," he added.

But Sehgal rules out concerns on the debt front.

“What do you think the growth of Motherson is fuelled by? Somebody has to pay the bill, no?" He added, “There is nothing to hide. We are close to 200-odd companies. Guess how much salary I take? I never took it from 1995 (the year he resigned as managing director and handed over the day-to-day running of the company to professionals). If you are still sceptical, then you really have a problem and you must go and see a doctor."

The Samvardhana Motherson Group has acquired 16 companies since 2000 and seven in the past five years. Of the seven, five were acquired by MSSL with Peguform, valued at 13,000 crore, being the biggest.

Giving MSSL a clean bill of health, Nishit Zota and Vidrum Mehta, sector analysts, ICICI Securities Ltd, said, “Despite a major capex in FY16, we believe strong cash flow generation is likely to lead to a reduction in debt levels and improve the balance sheet. We estimate net debt will reduce from 3,686 crore in FY15 to 2,662 crore in FY17."

The future

MSSL said it will hit its $18 billion revenue target by increasing its global market share, its product offerings and the number of auto components it supplies to each car. It expected 30% incremental revenue from the US, 25% from Europe and 25% from China and India. Also, 65% of its growth is expected to be organic.

“A lot of the vendors are not in a position to satisfy the customers," Sehgal said, adding “So, that’s an opportunity for a good supplier (like us) and that’s the basis of our confidence."

Sehgal is also on the lookout for a big acquisition as that will help him reach his targets faster. “Tomorrow if there is a company, which is bigger than my group, I will still go for it," he said. “If I go for that then I have already done my target for the next 5-7 years in the first year itself," he added.

The pace of growth does not worry him. “Why should it worry me? You can’t break the law but if you come with me to Germany, you will be driving at 320 kmph. You will say that’s not safe. It is very safe."

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