Motherson Sumi Systems Ltd (MSSL), the flagship company of auto parts maker Samvardhana Motherson Group (SMG) remains focussed on new acquisitions even though the company’s debt level has increased sharply.
In an interview to Mint Laksh Vaaman Sehgal, vice chairman, SMG said that while the group remains cautious about the rising debt levels it is still open to making new acquisitions if the valuations prove to be attractive.
“There are a bunch (deals) in the pipeline but nothing has reached the final stages that I can give you colour on. But yes, we are still actively looking at making more acquisitions and of course, we are being very cautious and only looking at our customers’ suggestions,” Laksh Vaaman Sehgal, vice chairman, SMG told this publication in a recent interview. “We are really looking at what our customers are telling us to do. I can tell you that our global M&A team is quite busy at the moment,” he added.
While Sehgal did not disclose the technology domain or the geography where new acquisitions are being looked at in the near future, he said that the company would stay within its product portfolio.“We will not move outside of what we already make. There will be no new product vertical,” Sehgal said. Earlier this month, the company disclosed its unaudited financials for FY2020. MSSL said its net debt as on 31 March 2020 was at ₹7,150 crore, which reduced year-on-year as a result of the part payment done by the holding company Samvardhana Motherson International Ltd or SAMIL.
SAMIL, which also is the investment vehicle of the promoters and holds 33.43% in MSSL, subsequently released 30.5 million pledged shares in the latter recently.
“We continue to deleverage further. We had debt at the family level and that had come in from international subsidiaries,” Sehgal added.
MSSL’s net debt has seen a significant rise increasing from ₹3,200 crore in FY15 to close to ₹8,000 crore in FY19 after it invested in several new acquisitions that included more than 30 new manufacturing plants globally (including India) in the last five years. These acquisitions added enormous fixed costs in the company’s balance sheet.
However, to secure ample liquidity to sail through the coronavirus pandemic, the company is looking to raise new funds worth ₹1,000 crore that includes ₹500 crore by issuing non-convertible debentures or NCDs for 3 years with a payable interest of 7.84% per annum. While MSSL is open for new acquisitions, Sehgal said management is not looking at investing in greenfield projects such as building new plants.
“That’s one area which consumes a lot of capex. Instead, most of our capex is already invested. These new plants are expected to generate cash and improve the company’s liquidity position,” he said hoping that the new plants will pay back to further reduce the net debt levels over the next quarters. The company has a track record of acquiring new entities based on the suggestions made by its customers. While doing so it also secures new 5-7 year orders from these customers.
Presently, 40% of total group revenues come from Europe and the UK, which went into lockdown before India in March. Vehicle manufacturers are now beginning to open their facilities. A majority of those plants are expected to open up by early May, Sehgal said. Last month, Moody’s Investor Service had assigned Ba1 corporate family rating (CFR) to MSSL and had said that it could downgrade the rating if the company fails to restore any meaningful operating profits thereby containing the cash burn by H2 CY2020.
