It’s very rare for Indian CEOs to lose their composure during analyst concalls. Usually, they and their acolytes ooze cream and honey about the latest quarter and regurgitate endless versions of it throughout the concall. Analysts, too, play along, not wanting to get into management’s bad books. So, when Vivek Chaand Sehgal, founder of Motherson Sumi Systems (MSS), in response to a follow-up query regarding the downside for the OEMs he supplies to, blurted, “You have to ask the OEMs the question, boss. I am no authority on this. Sorry about that”, one is not sure what the after chatter in the analyst community might have been.
MSS grew seven times in four years, but overseas buys threaten profitability
To Sehgal’s credit, he does majorly own and run a company with a present-day market cap of about Rs.10,000 crore and has delivered the targets set so far. Since early 2000, Motherson has been setting five-year topline and return on capital employed (RoCE) targets. RoCE is a metric used to gauge a company’s capital efficiency. MSS clocked sales of Rs.781 crore and RoCE of 40% by FY05. Continuing with its winning streak, the company surpassed its subsequent five-year revenue target by half a billion to touch $1.5 billion by FY10 and managed to maintain RoCE of 37%. Today, the company’s grand strategy is to clock about $5 billion in sales by FY15 and achieve a RoCE of 40%.
Thanks to a slew of joint ventures and close to a dozen buyouts since 2002, Sehgal has been on track. But the big addition to MSS’ topline happened during the credit crunch of 2008. The world was in the grip of an economic slowdown and there was little festive cheer as businesses were closing down or were cutting back on production. The auto industry was especially badly hurt with sales of new cars falling by half in the US, the world’s biggest auto market, in Q4CY08; Europe wasn’t any better off. Back in India, Motherson couldn’t escape the impact, either. Orders from carmakers were drying up while inventory was piling up. The management had no choice but to halt production for about a week and give its employ