Expect acquisitions to contribute ₹ 14,500 crore to revenues in FY25: Samvardhana Motherson

Pankaj Mittal, chief operating officer of Samvardhana Motherson International, expects recent acquisitions to contribute to this ₹14,500 crore revenue during April-March 2024-25. 18 greenfield facilities will also come online and start contributing.

The automotive component manufacturer reported a consolidated net profit of ₹1,372 crore for January-March, compared to ₹654 crore in the same period last year. Operating revenues increased by 20% to ₹27,058 crores.

Kunal Malani, CFO, noted that the return on capital employed (RoCE) increased from 11% to 18% in FY24 and sees potential for further growth.

It also predicts significant growth for emerging businesses over the next five years.

Below is the full transcript of the interview:

Q: Consolidated revenue growth in FY24 was 25%. What are the prospects for FY25? Can we do better and what are the current demand trends?

Mittal: If you look at the fundamentals, we grow both organically and inorganically. This year, both organic and inorganic growth contributed almost a similar amount, 12.5% ​​came from organic growth, 12.5% ​​from inorganic. Also in terms of the future, we are on a very good track, having created 18 facilities from scratch that will be put into operation. We have completed acquisitions that are not included in the income statement this year, as is Yachio. We did ADI, Lumen, everything together will contribute, if you look at the whole year, all the acquisitions we have made should contribute further ₹14,500 crore or something like that in FY25. So organically, inorganically and we are very much on track towards our Vision 25 which was $36 billion. So more things will come. We see a good future. As a powertrain-independent company, we are not as impacted by changes in the market. We supply all types of vehicles.

Q: Acquisitions will have their share ₹14,500 crore in FY25. What would it look like in terms of growth? What are you looking at and what will organic growth be like in 2025?

Mittal: Being an Original Equipment Manufacturer (OEM) supplier, we can’t provide exact numbers, but as I mentioned, the basics are in place. We are a deleveraged company with very good ratings. So being naturally acquisitive customers gives us a lot more opportunities and that’s why we’re looking at acquisitions to grow as well and the companies that we’ve acquired also have a very good future in terms of organic growth because if you look at the market like Yachiyo, coming into the market for both its core products such as sunroofs and plastic fuel tanks will see very good growth. We have very good technologies that have proven themselves both inside and outside, and that work very well in terms of providing solutions to our customers. Most of these greenfield sites are also located in emerging markets, most of them in India and China, which are characterized by high growth.

Question: Margins increased in the fourth quarter. How sustainable is this expansion given the rising costs of many materials, especially metals? What is the sustainable margin you would like to maintain in FY25?

Malani: As we have always said, please take a long-term view of Motherson. One quarter doesn’t necessarily reflect much. So, if you look at the annual level, yes, we have improved our performance and we have always said, please look at the absolute numbers, and if we look at the absolute numbers, we will continue to grow in the future. The number to really focus on is RoCE, which we increased from 11% last year to 18% this year; if we exclude some mergers and acquisitions (M&A) and green areas that we have created. If you include them, we still have a 17% chance. We see a lot of pull here in terms of continued growth potential in FY25. I think Mittal has mentioned some acquisitions that are not yet reflected in the P&L. They are already on the balance sheet side, but the full impact is not visible on the income statement. And hence, ₹14,500 crore is the minimum that can be earned from the top players’ side. Apart from that, business results were quite good. The outlook appears decent, and as a result, we were also able to recognize deferred tax assets in connection with some of our past losses this quarter, which again reflects the longer-term shift that is occurring when many of our units that have struggled in the past they performed well, regularly improving their results. And this is our ability to recognize some of the deferred tax assets. So all the ingredients are there that we should be able to continue to drive on the RoCE platform. Our target is 40%, so we still have a long way to go in that respect. But directionally, we should certainly be able to improve this very well in FY25.

You can watch the entire interview in the attached video

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