Motherson Sumi Systems Ltd – Vision 2025

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Motherson Sumi Systems Ltd

Introduction

Motherson Sumi System’s share price has been on a strong upward trajectory rebounding from Rs.50 to Rs.150 in the last 6 months. Several factors are at play here, but at present the talk of the town is the recent announcement of their Vision for 2025. In this blog, we will delve deep and thoroughly analyze the guidance and goals set by the company for the next 5 years.

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Motherson Sumi Vision 2025 Key Highlights

Ambitious growth Targets

  • Motherson Sumi reiterated Vision 2025 with an ambitious target of $36 Billion Consolidated Revenue (at 29% CAGR in FY20-25) while their FY20 revenues stand at $8.9 Billion.
  • The Company has big growth ambitions although value creation will depend on inorganic opportunities through acquisitions and meeting investment needs by raising fresh capital. 
  • Motherson Sumi has an average ROCE (FY16-20) of 17%. They are optimistic and have set a target ROCE of 40% by FY25. Despite the multifarious acquisitions, they have been triumphant in concocting synergy and coherence among their various subsidiaries.
  • The company aims to derive 25% of revenues from Non-Auto business through diversification into industries like aerospace, medical, It and logistics.
  • In light of this they consequently they plan to execute – 3C x 10 Diversification Strategy. It entails that no country, consumer or component should contribute to more than 10% of revenue. This will ensure optimum diversification as well as avoid concentration and dependence of revenue on a particular domain.
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Revenue – Targets vs Achieved

  • When we look back retrospect, we discern that the company has comfortable achieved and exceed its revenue targets for 2010 and 2015. However, the company couldn’t continue this streak and failed to meet the $18 Billion target set for 2020 by $9.1 Billion.
Motherson Sumi – Target vs Actual Revenue
  • In order to achieve the high and aspiring revenue target set for 2025, Motherson will have to deliver a 22% CAGR in revenues.
  • The company plans to bring in auto revenues to the tune of $27 Billion i.e. 75% of  revenues. This can happen either through the organic growth of their existing business or inorganic growth by acquiring other companies.
  • The key drivers for auto revenue Growth at 22% CAGR in FY20-25 are as follows –
Auto Revenue growth key demand drivers
  • The company aims to generate non-auto revenues to the tune of $9 Billion i.e. 25% of  revenues by diversifying into 4 segments namely Aerospace, Medical, IT and Logistics.
  • The key focus area in aerospace include aero-structure, landing & engine parts, wiring harnesses and cabin parts. The company is going to start a new aerospace facility in April 2021 and is evaluating potential acquisitions.
  • Under Medical, Motherson Sumi plans to launch point-of-care technologies, grow contract manufacturing and inorganically build large global tech platform.
  • Currently, company earns less than $1 billion revenue from these four segments. Thus to meet its target of $9 billion revenue from these segments, company needs to increase its revenue by 9 times.
  • Such an ambitious target is plausible mainly from inorganic acquisitions.
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Revenue Mix – Target vs Achieved

  • Motherson Sumi has consistently outperformed the set targets with respect to sales from customers outside India and largest customer turnover as a % of sales, while simultaneous raising the bar for every consequent target.
  • Though the company has missed out on reaching their dividend payout target in 2010, 2015 and 2020. Their payout target for FY25 is 40%, the same as they were for 2020.
Motherson Sumi – Target vs Achieved
Country and Customer wise FY20 Revenue Mix
Motherson Sumi Revenue mix -Country wise and customer wise

RoCE – Target vs Actual

Motherson Sumi – Target vs Actual RoCE
  • The company’s ROCE on a consolidated basis has been on a decline since 2010, while simultaneously they’ve been quite volatile on a standalone basis.

Conclusion

Motherson Sumi has to entail raising capital of $11.4 Billion to fund acquisitions to drive the desired growth. They plan to retrieve $2.7 Billion from internal accruals and the remaining $8.7 Billion will be obtained by fresh issue of capital either through debt or equity.
Motherson Sumi’s guidance for the coming half decade and their optimism are commendable. However the big questions still stand –

How will they achieve these targets?

Organic or inorganic growth, which will be the catalyst?

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Is the Vision for 2025 overly ambitious?

The only way to know for sure is to wait and see how this saga unravels in the coming years. Stay tuned in for more.



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