What is going on with Motherson Sumi?

Problems aren’t just problems, instead, they are just a bunch of new opportunities. There is yet another guy who is a living testimony to this. Vivek Chand Sehgal saw an opportunity in every problem and dared to follow it. Now his business empire stands tall in the corporate sector churning an annual profit of nearly 14,000 Crore. Motherson Company started its operation in 1975. Its major business was to manufacture automotive cables which are used in cars. Now, the Motherson Company produces various automotive parts such as car mirrors, metal components for cars and other spare parts used in the manufacture of automobiles. It branched out to more than 25 countries and works in close association with major car companies like BMW, Volkswagen, Maruti Suzuki and so on. 

The birth tale of Motherson Sumi 

Joining hands with his grandfather, V.C.Sehgal started his journey as a small trader in Chandni Chowk. His daily routine was to carry silver to the airport and deal with the export procedures. One fine day he was approached by Maruti Udyog for manufacturing car cables.   Most of us would have turned it down considering the risk and competition. But he proved his capability and won the contract. Thus, recording his first victory. He then packed his backs to Japan, knocking the doors of Tokai Electric (which is now known as Sumitomo Wiring system) and started a joint venture with them. Motherson Sumi Systems Limited (MSSL) went public by issuing stocks in 1993. MSG involved in various acquisitions such as Bombardier’s UK rolling stock electrical, Visiocorp and a lot of others.  In 1995, he gave up the MD position intending to serve the company better and assumed the position of Vice-chairman. 

Motherson Sumi demerger 

January this year the company stated its plan to be demerged. This step was taken by the company to fulfill the long-standing request of the Sumitomo Wiring system. The verdict has been put forward to the board to be agreed upon.  The motherson sumi demerger is a result of the Sumitomo Wiring system’s intention, which is a well-established company in Japan. They wanted to stick to their area of expertise, which is wire harnessing. Hence, post the demerge the company will be vertically split into MSSL-2 and Motherson Sumi Sumitomo. Thus, the Sumitomo group will get what they wanted and will be focusing on the domestic business of wire harnessing in India. The total holding of 51% SMRPBV along with 49% of SAMIL will go to MSSL-2, making it a stronger entity. However, both the companies will be a mirror image. Further, as per the company, the split is intended to simplify the structure and the various stakeholder interest is sure to be protected. Key aspects regarding the debt, etc are still on the discussion.

 Amidst the industrial slowdown and COVID-19 

The auto sector slowdown impacted the sales and the revenue of the company causing it to slip from the targeted revenue of $18 billion. Further, the spread of COVID-19 made it shut its factories in Europe and India. Following this, shares of Motherson Sumi fell sharply in April. The coronavirus has caused heavy damage to the supply chain of the company.  But its plants in China have started its operation. Diversification has surely helped Motherson Sumi in dealing with difficult times. Furthermore, the firm's promoters increased its pledging by 24.5 million shares against Kotak Mahindra’s investment. This was followed by the board's nod to meet working capital requirements that have occurred due to the pandemic. 

But what happens to be a silver lining to the shareholders is the fact that the company has reduced its debt holdings to 11-quarter low. Further, the company claims that they are “well-prepared” to meet the pandemic. The company is highly optimistic about the post-pandemic situation as well. They expect that the demand will bounce back as more people will prefer personal vehicles over public ones considering hygiene and health norms. They are also closely monitoring the market for opportunities. They are also considering the pandemic as a chance to find out companies for acquisition. The corporation is also highly positive about the shifting trends and the emergence of Electric vehicles. They are already preparing themselves to meet their consumer needs.  The company continues to excel nationally and stands strong in the global market. The future is just a factory of opportunities for MSG. We will have to wait and watch how it changes opportunities to business models in the years to come. Hope you like this motherson sumi case study.